<PAGE>
As filed with the Securities and Exchange Commission on June 24, 1999
Registration No. 333-75171
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
GREENMOUNTAIN.COM COMPANY
(Exact name of Registrant as specified in its charter)
---------------
Delaware 5961 03-0360441
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Classification Code Number)
Identification Number)
of incorporation or
organization)
55 Green Mountain Drive
South Burlington, Vermont 05403
(802) 846-6100
(Address, including zip code, and telephone number,
including area code, or Registrant's principal executive offices)
PETER H. ZAMORE, ESQ.
Vice President, General Counsel and Secretary
55 Green Mountain Drive
South Burlington, Vermont 05403
(802) 846-6100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
JOHN T. McCAFFERTY, Esq. THOMAS A. COLL, Esq.
TROY B. LEWIS, Esq. NANCY E. DENYES, Esq.
Jones, Day, Reavis & Pogue Cooley Godward LLP
2300 Trammell Crow Center 4365 Executive Drive, Suite 1100
2001 Ross Avenue San Diego, California 92121
Dallas, Texas 75201 (619) 550-6000
(214) 220-3939
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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. [_]
---------------
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. +
+GreenMountain.com may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus is not an offer to sell these securities and it is not +
+soliciting an offer to buy these securities in any jurisdiction where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--JUNE 24, 1999
PROSPECTUS
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12,000,000 Shares
[GreenMountain.com logo]
["Choose wisely. It's a small planet." logo]
Common Stock
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GreenMountain.com Company is offering shares of its common stock in an initial
public offering. Prior to this offering, there has been no public market for
GreenMountain.com's common stock.
We anticipate that the public offering price will be between $9.00 and $10.00
per share. The shares of GreenMountain.com will be included for quotation in
the Nasdaq National Market under the symbol "GMTN."
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price.............................. $ $
Underwriting discounts and commissions............. $ $
Proceeds, before expenses, to GreenMountain.com.... $ $
</TABLE>
See "Risk Factors" on pages 9 to 17 for factors that you should consider before
investing in the shares of GreenMountain.com.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
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The underwriters may purchase up to 1,800,000 additional shares from
GreenMountain.com at the public offering price, less underwriting discounts and
commissions, to cover over-allotments. Delivery of the shares will be on ,
1999.
Prudential Securities BancBoston Robertson Stephens
Deutsche Banc Alex. Brown
Volpe Brown Whelan & Company
FAC/Equities
First Union Capital Markets Corp.
The Robinson-Humphrey Company
E*OFFERING
, 1999
<PAGE>
[Description of Front Cover Artwork]
Cover Page
Right: image of sun rings
Bottom right: image of caterpillar
Outside portion of gatefold
- ---------------------------
Top left: image of cocoon hanging from leaf
Right: image of sun rings
Top center: text reading "g* commerce: using consumer purchase decisions to
effect positive environmental change"
Middle: screenprint of greenmountain.com's home page
Bottom right: greenmountain.com logo, with "Choose wisely. It's a small
planet." logo
Gatefold
- --------
Left: image of planet earth with sun rings and flying butterfly, surrounded by
following text:
Left: image of planet Earth with sun rings and flying butterfly, surrounded
by following text:
"Small sensitive planet seeks caring individuals"
"Imagine a company where Internet commerce, basic consumer needs and the
environment all intersect. A place that easily empowers ordinary people to make
a real difference--one click at a time."
Bottom right: greenmountain.com logo, with "Choose wisely. It's a small
planet." logo
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 9
Use of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Selected Financial Information...... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................ 33
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Environmental Advisory Board.......................................... 57
Management............................................................ 58
Related Party Transactions............................................ 74
Principal Stockholders................................................ 79
Description of Capital Stock.......................................... 82
Shares Eligible for Future Sale....................................... 85
Underwriting.......................................................... 87
Legal Matters......................................................... 88
Experts............................................................... 88
Additional Information................................................ 89
Index to Financial Statements......................................... F-1
</TABLE>
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any jurisdiction where the offer or
sale is not permitted. You should not assume that the information contained in
this prospectus is accurate as of any date other than the date on the front
cover of this prospectus.
3
<PAGE>
PROSPECTUS SUMMARY
This summary sets forth the material highlights of the information contained
elsewhere in this prospectus. It may not contain all of the information that
you should consider before investing in GreenMountain.com, and you should read
the entire prospectus carefully.
Unless otherwise indicated, all information in this prospectus reflects our
conversion from a limited liability company to a corporation, which occurred on
June 18, 1999, and the related exchange of each common unit of the limited
liability company for three shares of common stock of the corporation. See
"Related Party Transactions--Reorganization Transaction."
GreenMountain.com
GreenMountain.com uses the Internet and other media to offer environmentally
friendly electricity and other green products to consumers. Our Web site--
www.greenmountain.com--will use the rich interactive resources of the Internet
to educate consumers about the environmental impact of their everyday purchases
and make it easy and appealing for them to use those purchases as agents of
change for a cleaner and healthier environment. We refer to the concept of
using consumer purchase decisions to effect positive environmental change as
"g*commerce." Our mission is to make Green Mountain the leading brand for
environmentally friendly products.
"Environmentally friendly" or "green" products, as we use these terms for
purposes of our business plan, are those products that have a less harmful
effect on the environment than other products available to consumers having the
same or a similar use. Based on number of customers served, we currently are
the leading retailer of green electricity to residential customers in
Pennsylvania and California--the two states that have effectively opened their
residential electricity markets to competition. Our green electricity products
are produced from renewable and other environmentally preferable generation
sources, such as wind, water, geothermal, biomass, landfill gas and natural
gas. In addition, we offer solar generation equipment and have very recently
begun to offer other green consumer products over the Internet.
Three broad trends support our business plan.
. Environmental Awareness. We believe that there is growing concern about
the environment among consumers today and that there is an excellent
opportunity to build a strong environmental brand presence. We believe
that, if offered a convenient, cost-effective choice, a large market of
consumers will purchase a product that is environmentally friendly over
one that is not.
. Deregulation of Electric Utility Markets. We expect deregulation of the
$200 billion electric utility industry--the largest industrial source of
air pollution in the United States--to provide consumers in more than
half the states with a choice of electricity supplier and generation
source by the end of 2003.
. Growth of the Internet. The Internet is emerging as one of the most
significant global communications media, enabling millions of people to
share information and conduct business electronically. We believe that
online retailers are able to communicate more efficiently and
effectively with more customers than traditional retailers.
Our predecessor, Green Mountain Energy Resources L.L.C., was formed in
February 1997 and commenced operations in August 1997. As a result, we have
only a limited operating history upon which you can evaluate our business and
prospects. For the year ended December 31, 1998, we generated revenues of $1.5
million and incurred net losses of $46.0 million, and for the first quarter of
1999, we generated revenues of
4
Choose wisely.
<PAGE>
$4.1 million and incurred net losses of $19.8 million. More than 99% of our
revenues have come from green electricity sales in Pennsylvania and California.
We expect to incur net losses in subsequent fiscal periods. Because we expect
to continue to incur significant market development expenses, we will need to
generate significant revenues to achieve profitability in the future.
Our Web address is www.greenmountain.com. Our principal executive offices
are at 55 Green Mountain Drive, South Burlington, Vermont 05403. Our telephone
number is 802.846.6100. The information on our Web site is not part of this
prospectus.
Our Business Strategy
We are the first and only company to offer green electricity to residential
customers in both Pennsylvania and California. Although to date we have
primarily utilized traditional media in our marketing efforts, we are also one
of the first companies to offer green electricity products over the Internet.
We intend to take advantage of this first mover momentum to offer a wide
variety of green consumer products over the Internet.
To fulfill our mission, we have developed a strategy consisting of the
following key elements:
.Position Green Mountain as the most trusted and best known environmental
brand;
.Offer convenience and selection to purchasers of green consumer products;
.Develop and maintain our Web site as a state-of-the-art, interactive
commerce platform that makes purchasing our green products easy and
appealing; and
.Develop and maintain an online community that fosters and supports
g*commerce.
The GreenMountain.com Web Site
Our Web site is being upgraded to provide consumers with easy access to a
broad selection of green consumer products and in-depth, educational
environmental content. Our focus in this effort is on providing content with
environmental appeal to people of all ages, such as news articles, product
research information, corporate environmental value added reports and
environment-related tools, games and quizzes. Our approach is to compile
content from multiple sources and integrate it with our own editorial content
to increase its usefulness and the convenience, relevance and enjoyment of
consumers' visits to our Web site, thereby promoting increased traffic and
sales of our green products. We expect that our current upgrade will be
complete by October 1, 1999.
Our Management Team
Our management team is led by Sam Wyly, our Chairman. Mr. Wyly, a computer
software entrepreneur, has created and managed several public and private
companies. In 1981, he co-founded Sterling Software, a New York Stock Exchange-
listed supplier of software products and services, and he currently serves as
its Chairman. He also serves as Chairman of the Executive Committee of Sterling
Commerce, a leading provider of business-to-business electronic commerce
software and network services that was spun off by Sterling Software in 1996.
Since August 1997, entities affiliated with the Wyly family have invested more
than $70 million in our company. After this offering, Sam Wyly, Evan Wyly and
Lisa Wyly will collectively own of record or otherwise have voting control over
2,431,866 shares, or 6.5% of the shares outstanding. Because of this interest,
as well as the management positions of these individuals, we expect that the
Wyly family will continue to exercise significant control over our direction
and management following the closing of this offering.
5
It's a small planet.(SM)
<PAGE>
Our managers have substantial expertise in brand development and marketing,
as well as Internet-related technologies. In addition, we have established
strategic relationships with leading marketing and technology companies to help
us accomplish our mission.
Our Environmental Commitment
Our ability to obtain customers and generate sales depends on maintaining
our reputation as a company making a positive contribution to the environment.
We stake our reputation on the environmental soundness of our green products,
and we view our environmental integrity as one of our most important assets.
We believe strongly in our g*commerce vision. We intend to use the broad
reach of the Internet to aggregate the g*commerce impact of the large online
community, and we believe that the power of this community to effect
environmental change will be significant.
We intend to closely monitor our effect on the environment and consider it
an essential measure of our success. We have established an Environmental
Advisory Board, the management position of Chief Environmental Officer and a
committee of our board of directors, which will be responsible for reviewing
our adherence to our environmental principles.
6
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<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered by 12,000,000 shares
GreenMountain.com................
Total shares outstanding after 37,546,500 shares
this offering....................
Use of proceeds................... To provide working capital for brand
awareness and marketing, technology and
development expenses, repayment of any debt
and other general corporate purposes
Nasdaq National Market symbol..... GMTN
</TABLE>
Additional Potential Share Issuances
You should be aware that we are permitted, and in some cases obligated, to
issue shares of common stock in addition to the common stock expected to be
outstanding after this offering as indicated above. If and when we issue these
shares, the percentage of the common stock you own may be diluted. The
following is a summary of additional shares of common stock that may be issued
pursuant to the underwriters' over-allotment option and that we have currently
approved, or we expect to approve, for issuance upon the exercise of options
and warrants or grant of stock awards after this offering:
. 1,800,000 shares issuable upon the exercise of the underwriters' over-
allotment option;
. 6,374,559 shares issuable upon the exercise of the options outstanding as
of the date of this prospectus;
. 3,012,066 shares available for issuance upon the exercise of options
awarded under our 1999 Stock Option Plan in the future, including an
option to purchase 462,500 shares of common stock expected to be granted
to Sam Wyly, an option to purchase 360,000 shares of common stock
expected to be granted to Dennis Crumpler, a Vice Chairman and Director
of GreenMountain.com, an option to purchase 675,000 shares of common
stock expected to be granted to Dennis Kelly, our President and Chief
Operating Officer, and options to purchase an aggregate of 449,000 shares
of common stock expected to be granted to a new director nominee, nine
new employees and four new advisors, in each case in connection with this
offering;
. 150,000 shares available for issuance under our 1999 Director Stock Award
Plan; and
. 11,940 shares issuable upon the exercise of warrants outstanding as of
the date of this prospectus.
Except as otherwise indicated, the number of shares outstanding set forth in
this prospectus does not reflect these potential issuances or those described
in "Business--Our Web Site" below.
7
It's a small planet.(SM)
<PAGE>
Summary Financial Data
The following table summarizes our statements of operations for the period
from inception on February 26, 1997 to December 31, 1997, for the year ended
December 31, 1998 and for the three-month periods ended March 31, 1998 and 1999
and our balance sheet as of March 31, 1999. The statement of operations per
share data reflect our conversion from a limited liability company to a
corporation as if that conversion had occurred as of the beginning of the
period indicated. See our financial statements and the notes to those
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
February 26, 1997
(Inception) to Year Ended
December 31, 1997 December 31, 1998 1998 1999
----------------- ----------------- ------ --------
(Unaudited)
(In thousands, except share data)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................. $ -- $ 1,530 $ -- $ 4,150
Cost of sales............ -- 1,097 -- 3,096
Total operating
expenses................ 13,905 46,465 6,731 21,064
Operating loss........... (13,905) (46,032) (6,731) (20,010)
Net loss................. (13,862) (46,039) (6,707) (19,795)
======== ======== ====== ========
Basic and diluted loss
per common share........ $ (16.70) $ (6.33) $(3.53) $ (0.89)
======== ======== ====== ========
Basic and diluted
weighted average common
shares
outstanding............. 830 7,272 1,899 22,327
======== ======== ====== ========
</TABLE>
<TABLE>
<CAPTION>
At March 31, 1999
---------------------------
Actual As Adjusted (1)
------- ---------------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash................................................ $20,476 $118,821
Restricted cash..................................... 2,513 2,513
Total assets........................................ 29,750 128,095
Total liabilities................................... 12,313 12,313
Stockholders' equity................................ 17,437 115,782
</TABLE>
- --------
(1)As adjusted to reflect the sale of the 12,000,000 shares of common stock
offered in this offering at an assumed initial public offering price of
$9.00 per share, after deducting underwriting discounts and commissions and
estimated offering expenses, as if this offering had been completed as of
March 31, 1999. See "Use of Proceeds" and "Capitalization."
8
Choose wisely.
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the following risk factors, in addition to the other information in this
prospectus, before purchasing shares of GreenMountain.com common stock. Each of
these risk factors could adversely affect our business, operating results and
financial condition and the price of our common stock.
RISKS RELATED TO ESTABLISHMENT OF OUR BUSINESS
Our Business Plan Is Novel And Our Business May Not Prove To Be Profitable.
Our business plan is novel and without established precedent. It relies on
three broad trends:
.The willingness of consumers to use their purchasing decisions to address
environmental concerns;
.The movement from government controls to free market competition in the
electric utility industry; and
.Increasing use of the Internet for commerce transactions.
Our ability to grow our customer base and to generate sales sufficient for us
to achieve profitability depends on the continuation of these trends and the
successful implementation of the primary components of our business strategy.
To date, more than 99% of our revenues have come from sales of our green
electricity products in Pennsylvania and California. To grow our customer base
and generate increased sales, we must:
.Increase awareness of the Green Mountain brand;
.Offer a broad selection of green consumer products;
.Upgrade our Web site to accommodate and support expanded product
offerings; and
.Create an online community of people with shared concerns about the
environment.
The novel interaction of these factors presents a high degree of uncertainty
as to whether we can achieve profitability. Many of these factors are outside
our control. We cannot assure you that our business or your investment in our
stock will be profitable.
Both Investors And Our Management Will Have Very Limited Information
Available To Them In Making Decisions Relating To GreenMountain.com Because Of
Our Very Short Operating History And Because Of The New And Rapidly Evolving
Markets In Which We Operate. We commenced active operations in August 1997 as
a retail marketer of green electricity products and determined in late 1998 to
expand our retail marketing efforts by developing a state-of-the-art,
interactive commerce platform to offer other green consumer products. We have a
very limited operating history upon which an investor can evaluate our company,
our current business and our prospects. Our business model is evolving and an
investor in our common stock must consider the substantial and sometimes
unforeseeable expenses frequently encountered by early stage companies,
companies that are in the midst of significant business changes and companies
that are in new and rapidly evolving markets, such as the retail marketing of
electricity and online commerce. Similarly, our management has only a limited
operating history on which to base important business decisions. This lack of
information will make these management decisions very difficult and the outcome
of the decisions uncertain. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Our Strategy."
9
It's a small planet.(SM)
<PAGE>
We Have Incurred Losses, We Anticipate Losses Will Continue And We May Never
Achieve Profitability. We have recorded a substantial net loss for each fiscal
period since our inception and expect to continue to incur substantial net
losses for the foreseeable future. We incurred net losses of approximately
$46.0 million in 1998 and approximately $19.8 million in the first quarter of
1999. In connection with the implementation of our expanded business strategy
and the growth of our business, we expect our cost of sales and operating
expenses to increase significantly, especially in the areas of sales, marketing
and brand promotion. We will, therefore, need to generate significant revenues
to achieve profitability. We may never achieve profitability. Even if we do, we
may be unable to sustain or increase profitability in the future. See "Selected
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Our Ability To Grow Our Customer Base And Generate Sales Depends On
Positioning The Green Mountain Brand And Maintaining Our Reputation And The
Credibility Of Our Products. In order to grow our customer base and generate
sales, we believe we must position the Green Mountain name as the leading
environmental brand and maintain our reputation as a company making a positive
contribution to the environment, particularly in the Internet market and in
deregulated electricity markets within the United States. Promoting and
positioning the brand will depend largely on the success of our marketing
efforts and our ability to provide high quality products and customer service.
We cannot assure you that we will be successful in this regard. Building the
Green Mountain brand will require substantial marketing expenditures. Our sales
and marketing expenses were $33.0 million for 1998 and $12.4 million in the
first quarter of 1999. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." We cannot assure you that our brand
promotion activities will result in increased revenues or that any such
revenues will offset our marketing expenditures.
State and federal regulators and environmental and consumer groups
scrutinize claims regarding the environmental benefits of products and from
time to time challenge the environmental benefits of products that claim to be
green, including those offered by us. In addition, state or federal regulators
may establish criteria that we would be required to meet in order to
characterize our products as "environmentally friendly" or "green," or they may
require detailed disclosure of the basis of our characterization of our
products. Compliance with rules of this type could be burdensome, particularly
in the highly technical area of electricity marketing. Maintaining our
reputation and the credibility of our products, as well as our environmental
message, will depend on our ability to respond to these claims and comply with
these rules effectively and efficiently. Although we believe that our claims
regarding the environmental benefits of our products are accurate and
supportable and that we will be able to comply with any applicable regulations,
we cannot assure you that these challenges or compliance with regulations of
this type will not adversely affect our reputation, our customer base or our
revenues. See "Business--Our Strategy."
Our Ability To Grow Our Customer Base And Generate Sales Depends On
Broadening Our Product Offerings. Until very recently, our consumer product
offerings consisted solely of green electricity products and solar generation
equipment, each of which we currently offer only in Pennsylvania and
California. To date, more than 99% of our revenues have come from green
electricity sales in those two states. We have recently begun offering a
limited number of other products that are also available to consumers outside
Pennsylvania and California. See "Business--Other Products--Recently Announced
Product Offerings." In order to grow our customer base and generate sales, we
must broaden our product offerings to include other green consumer products
that can be offered outside of deregulated utility markets. We cannot assure
you that we will be able to do so. We do not intend to manufacture any products
but rather will sell products produced for us by others under the Green
Mountain brand and, accordingly, we will need to establish relationships with
third parties to purchase or otherwise obtain such products. We will also need
to enter into relationships with third parties to make their own green products
available through our Web site. Our experience in purchasing and marketing
green electricity may not be effective in purchasing and marketing other green
consumer products. We cannot assure you that we will be able to establish the
third-party relationships necessary to broaden our product offerings as we
plan. Moreover, the commercial availability of some of the products that we
hope to offer--for example, fuel cells for homes, offices and cars--is
dependent on technological advances.
10
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<PAGE>
We cannot assure you when or even that such advances will occur, that we will
be able to develop profitably a sufficient selection of green consumer products
or that any of our products will achieve market acceptance. See "Business--Our
Strategy."
To Attract Customers And Make Sales Over The Internet, We Must Develop Our
Web Site And Implement Ongoing Improvements To Our Web Site In The Face Of
Rapid Technological Change. Our ability to attract consumers and sell them our
products over the Internet will depend on our ability to design, develop and
maintain a state-of-the-art Web site. The development of Web sites requires
substantial expenditures and lead time. As of March 31, 1999, we have spent
$1.1 million on the current upgrade of our Web site, and we expect to spend
another $4.5 million by October 1, 1999, when we expect this upgrade to be
complete. We are depending on Strategic Interactive Group, a specialized Web
site developer, for the upgrade of our Web site. If Strategic Interactive Group
does not meet our expectations, we would have to retain another Web site
developer and the upgrade of our Web site could be delayed. For a discussion of
potential arrangements with two additional Web site developers that could
reduce our dependence on Strategic Interactive Group, see "Business--Our Web
Site." However, we cannot assure you that we will ultimately enter into
definitive agreements relating to these arrangements. In addition, we cannot
assure you that the current upgrade of our Web site will be complete by
October 1, 1999 or that our Web site will be successful in attracting customers
after this upgrade is complete. When we launch our upgraded Web site, it could
contain errors that are discovered after it is launched and, as a result, we
may be required to modify the Web site to correct these errors. We cannot
assure you that we will be able to modify our Web site to correct any errors or
that we will be able to implement the ongoing improvements that we believe are
required for the continued success of a Web site, and we cannot estimate the
related costs with any certainty. To date, approximately 4% of our customer
sign-ups for our green electricity products have come through our Web site. We
have only very recently begun offering other green consumer products over the
Internet.
The online commerce industry is characterized by:
.Rapid technological changes;
.Frequent emergence of new industry standards and practices; and
.Continual changes in user and customer requirements and preferences.
Failure to adapt to the evolving technologies, industry standards and user
requirements and preferences on an ongoing basis could have a material adverse
effect on our ability to attract customers to and make sales through our Web
site. We cannot assure you that we will be successful in this regard. See
"Business--Our Strategy" and "Business--Our Web Site."
Our Failure To Develop And Maintain Strategic Web Site Relationships Could
Adversely Affect Our Ability To Attract Customers To Our Web Site. We believe
that in order to attract significant traffic to our Web site and thereby grow
our customer base we will need to establish and maintain relationships with
Internet portals, which are Web sites that offer a broad array of resources and
services on the Internet such as e-mail, discussion forums, search engines and
on-line shopping malls, to attract traffic to their site, and other high-
traffic Web sites that will carry links to our new Web site. For example, we
have entered into an arrangement with Yahoo! under which Yahoo! will place
banner advertising and button links on its properties and deliver e-mail, all
containing information about our energy business. We will also need to
establish and maintain relationships with content providers that will provide
our Web site with content that appeals to consumers who are concerned about the
environment. Competition exists for these types of relationships and we likely
will have to pay significant fees to establish and maintain these
relationships. We cannot assure you that we will be able to enter into or
maintain appropriate relationships or that, even if we do, we will attract
significant traffic to our Web site, grow our customer base or generate sales.
Our Ability To Expand Our Existing Green Electricity Business Into New
Markets Depends On The Outcome Of The Deregulation Process In Each State. We
believe that utility deregulation in the United States will continue on a
state-by-state basis. To date, however, only four states--Pennsylvania,
California, Massachusetts and Rhode Island--have implemented competition on a
statewide basis. Moreover, deregulation is a political process and its
continuation, as well as the timing and form of deregulation in any particular
state, cannot be predicted with any certainty. Specific features of
deregulation programs vary significantly from state to state. Our ability to
enter and compete in any particular deregulated market will depend on the
specific
11
It's a small planet.(SM)
<PAGE>
features, including the consumer protection provisions, of that market's
deregulation program. For example, the Pennsylvania program has afforded us
greater opportunity than the California program. We cannot assure you that
deregulation will continue or that the deregulation program implemented in any
particular state in the future will allow effective competition. If it does, we
may face additional competition and we cannot assure you that we will be able
to compete successfully in any state. If deregulation does not continue as we
currently anticipate, we would be unable to expand our existing green
electricity business as contemplated by our business plan and our financial
prospects would be materially and adversely affected. In any event, we may
incur significant expenses in connection with our lobbying efforts. See
"Business--The Opportunity--Deregulation is Empowering Consumers to Change the
Way Electricity is Made."
OTHER RISKS RELATED TO OUR BUSINESS GENERALLY
Our Operating Results May Fluctuate Significantly And Cause Volatility In
Our Stock Price. Our operating results may fluctuate significantly from quarter
to quarter and year to year. Our limited operating history, in combination with
the recent expansion of our business strategy, also makes the prediction of
future results of operations impossible. We believe that period-to-period
comparisons of our operating results are not meaningful and that the results
for any particular period should not be relied on as an indication of future
performance.
Our revenues and operating results may vary significantly from quarter to
quarter or year to year depending on a number of factors, including:
.Our ability to attract and retain customers;
.The level of consumer concern about the environment;
.The timing of deregulation of the electric utility industry and changes in
deregulation programs; and
.Other factors discussed under other captions under "Risk Factors."
Our limited operating history, together with the expansion of our business
strategy to include using our Web site to offer green consumer products other
than green electricity, also makes it difficult to fully assess the impact of
seasonal factors on our business. However, we expect to experience seasonality
in our business, reflecting a combination of seasonal fluctuations in Internet
usage, seasonal fluctuations of electricity usage and traditional retail
seasonality patterns. With respect to our existing retail electricity business,
higher than average use of electricity is expected in the summer and winter
months for Pennsylvania and California.
Fluctuations in operating results may result in volatility of the price of
our common stock in the public market. It is likely that, from time to time in
the future, our operating results will be below the expectations of public
market analysts and investors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Intense Competition May Affect Our Ability To Grow Our Customer Base And
Generate Sales. Both the deregulated electricity and online commerce markets
are new, rapidly evolving and highly competitive. We face intense competition,
and many of our competitors and potential competitors have:
.Longer operating histories;
.Greater name recognition;
.Larger customer bases; and
.Greater financial and other resources.
Competitors may enter the online commerce market easily and at relatively
little cost. In addition, our competitors, and competitors offering non-green
products in particular, may be able to devote significantly greater resources
than we can to the development and marketing of products. They may also be able
to offer better prices to our potential customers and make more attractive
offers to our potential strategic partners. We also anticipate competition from
other retailers attempting to offer a broad selection of green products. See
"Business--Our Competitive Position."
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<PAGE>
Poor Performance By One Or More Of Our Outside Service Providers Could Be
Disruptive To Our Business Operations. We rely on third-party service
providers for several key functions, including:
.Web site development;
.Mass media advertising;
.Direct mail marketing;
.Inbound and outbound telephone marketing;
.Mail response processing;
.Customer fulfillment;
.Billing and customer care; and
.Information technology functions.
Any interruption in these third-party services, or a deterioration in their
service, could be disruptive to our business. Many of the agreements with our
third-party service providers are terminable upon short notice. If any of these
arrangements is terminated, we cannot assure you that we will be able to find
an alternative provider on a timely basis or on similar terms. In addition,
changes in providers may result in increased administrative costs. See
"Business--Marketing, Sales and Customer Service."
Our Existing Green Electricity Business Depends On Our Ability To Obtain
From Wholesale Electricity Suppliers, On Acceptable Terms, Electricity Meeting
Our Customers' Requirements. We do not generate electricity. For electricity
supply to serve the requirements of our green electricity customers, we
currently rely on short-term requirement contracts with wholesale electricity
suppliers. Under these contracts, our suppliers provide electricity, usually
for a one-year period, that matches the aggregate customer requirements that
are assigned to them. These contracts are not dependent on any minimum number
of customers being assigned to them and permit us to service customers
throughout a state. Under some of these contracts, the supplier can discontinue
the assignment of additional customers upon 90 days' notice. The wholesale
price is fixed or based upon a fixed price spread for the term of the
contracts. We attempt to reduce our risk related to fluctuations in wholesale
prices and customer usage by using these contracts, but cannot assure you that
price fluctuations will not adversely affect our business.
We may be unable to obtain sufficient electric power to meet our future
supply needs, both for our existing operations in Pennsylvania and California
and future operations in new deregulated electricity markets that we are likely
to enter. We may be unable to extend or replace our existing supply contracts.
Moreover, any future supply contracts may not provide for a term or a price
comparable to those of our existing supply contracts and may not be
requirements contracts that enable us to reduce our risk relating to
fluctuations in wholesale prices and customer usage. In addition, specific
features of a deregulation program in any particular state may affect our
access to and the cost of supply arrangements for that state. See "Business--
Our Green Electricity Products."
Our Ability To Grow Our Customer Base And Generate Sales Depends Upon Public
Environmental Consciousness. Our ability to grow our customer base and generate
revenues from the sale of green consumer products depends on the continued
development of public concern about environmental issues. While we believe that
such concern is rooted in improvements to education and the wider dissemination
of environmental information in recent years, we cannot assure you that these
trends will continue or that the current levels of environmental consciousness
will be sustained. Given our business plan, the failure of such concern to
continue to develop could materially and adversely affect the growth of our
customer base and sales revenues and, accordingly, our financial prospects.
Potential Rapid Growth May Strain Our Human Resources. We have rapidly and
significantly expanded our operations, and future expansion will be required in
order for us to realize our business objectives. We have grown from 28
employees as of September 1, 1997 to 68 employees as of March 31, 1999, and our
operations have grown to serve approximately 68,000 electricity customers in
Pennsylvania and California as of March 31, 1999. See "Management's Discussion
and Analysis of Financial Condition and
13
It's a small planet.(SM)
<PAGE>
Results of Operations." We expect that future growth will place a significant
strain on our managerial, operational and financial resources. We must manage
our growth through appropriate systems and controls in each of these areas. We
must also expand, train and manage our workforce. There is intense competition
for personnel in the areas of our activities, and there can be no assurance
that we will be able to continue to attract and retain personnel with the
qualifications necessary for the development of our business.
Our Business Operations Could Be Disrupted And Business Opportunities Lost
If We Are Unable To Integrate Our New Senior Executives And Retain An Able
Management Team. The operation of our business depends on our ability to grow,
integrate and retain an able management team. We recently hired a new Chief
Executive Officer, President and Chief Operating Officer, Chief Financial
Officer and Chief Technology Officer. We cannot assure you that we will
successfully integrate these and other new arrivals with our existing staff
without disruption to our business operations or that we will retain the
services of key personnel.
Failure To Protect Our Intellectual Property Could Adversely Affect Our
Brand And Our Business. We rely on a combination of trademark and copyright
law, trade secret protection, confidentiality and license agreements with our
employees, strategic partners and others to protect our rights to our
intellectual property. We have filed applications to register some of our
service marks in the United States. Effective trademark, copyright and trade
secret protection may not be available in every country in which we intend
ultimately to offer our products. Despite our efforts, we cannot assure you
that our rights will be enforceable even if registered, and we may be unable to
deter misappropriation of our intellectual property. Misappropriation could
have a material adverse effect on our brand and our business by causing us to
lose customers and revenue opportunities. In addition, pursuing persons who
might misappropriate our intellectual property could be costly and divert the
attention of management from the operation of our business. See "Business--The
Protection of our Intellectual Property."
Products Sold By Us May Subject Us To Litigation And The Related Costs. We
will sell products produced by others under the Green Mountain brand. We will
also have relationships with third parties who make their green products
available through our Web site. These sales and relationships may subject us to
liabilities, including consumer product liabilities. Defending against any such
claims could be costly and divert the attention of management from the
operation of our business. While we intend to require our suppliers and other
parties in these relationships to indemnify us against those types of
liabilities, any available indemnification may not be adequate. We currently
have product liability insurance coverage in the amount of $35 million, with a
$200,000 deductible per occurrence. Our liability insurance may not adequately
protect us against these types of liabilities.
Claims Of Our Infringement On The Intellectual Property Rights Of Others
Could Be Costly And Disruptive To Our Business Operations. Other parties may
assert infringement claims against us or claims that we have violated a patent
or infringed a copyright, trademark or other proprietary right belonging to
them directly or through the use of technology that we license from others.
Defending against any such claim could be costly and divert the attention of
management from the operation of our business. In addition, the inability to
obtain or maintain the use of licenses or other technology could adversely
affect our business operations.
Year 2000 Complications Could Be Disruptive To Our Business Operations. On
January 1, 2000, many currently installed computer systems and software
products could fail or malfunction because they may not be able to distinguish
between 20th century dates and 21st century dates. We are subject to external
Year 2000-related failures or disruptions that might generally affect industry
and commerce, such as failures by energy generation or utility distribution
companies and related service interruptions. These failures or disruptions are
especially critical to us as a seller of retail electricity products.
Notwithstanding our Year 2000 efforts, the failure of our systems or those of
any of our information technology service providers, outsourcing partners or
suppliers, or the failure of the Internet generally, to be Year 2000 ready
could harm the operation of our systems or have unforeseen, material adverse
consequences to us. These consequences could include power supply interruptions
to our customers or the inability to bill our customers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Readiness Disclosure."
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<PAGE>
RISKS RELATED TO THE INTERNET AND ONLINE COMMERCE ASPECTS OF OUR BUSINESS
Our Ability To Generate Sales Depends On Continued Growth Of Online
Commerce. Our ability to generate sales of green consumer products through our
Web site depends on continued growth in the use of the Internet and in the
acceptance and volume of commerce transactions on the Internet. We cannot
assure you that the number of Internet users will continue to grow or that
commerce over the Internet will become more widespread or that our sales will
grow at a comparable rate. As is typical in the case of a new and rapidly
evolving industry, demand and market acceptance for recently introduced
services are subject to a high level of uncertainty. The Internet may not prove
to be a viable commercial marketplace for a number of reasons, including:
.Lack of acceptable security technologies;
.Lack of access and ease of use;
.Congestion of traffic;
.Inconsistent quality of service and lack of availability of cost-
effective, high-speed service;
.Potentially inadequate development of the necessary infrastructure;
.Governmental regulation; and
.Uncertainty regarding intellectual property ownership.
We cannot assure you that the Internet will support increasing use or will
prove to be a viable commercial marketplace.
We May Lose Customers And Revenue Opportunities If We Are Not Able To
Acquire Or Maintain An Effective Web Address. We currently hold the domain name
"greenmountain.com," as well as other related names. We may not be able to
prevent third parties from acquiring Web addresses that are similar to ours. If
that should occur, we could lose customers and revenue opportunities to those
third parties. Domain names generally are regulated by Internet regulatory
bodies and their designees. The regulation of domain names in the United States
and in foreign countries is subject to change. As a result, we may not acquire
or maintain the "greenmountain.com" domain name in all of the countries in
which we may conduct business in the future. Furthermore, the relationship
between regulations governing such addresses and laws protecting trademarks is
not clear.
Failure Or Inadequate Performance Of Our Technology Systems May Interrupt
Our Operations And Result In The Loss Of Customers And Revenue
Opportunities. Our ability to grow our customer base and generate sales of our
green consumer products over the Internet will depend on the efficient and
uninterrupted operation of our Web-related technology systems that are required
to accommodate a high volume of traffic. We cannot assure you that our Web site
infrastructure will be able to accommodate the volume of traffic that could
develop or that upgrade requirements will not have an adverse impact on our
business. Although we intend to implement security measures, our systems will
be vulnerable to physical damage or interruption from human error, natural
disasters, telecommunication failures, break-ins, sabotage, computer viruses,
intentional acts of vandalism and similar events. We do not intend to have
redundant systems and have not adopted a formal disaster recovery plan.
Therefore, any system failure, including network, software or hardware failure,
that causes an interruption in our service or a decrease in responsiveness of
our Web site could cause us to lose customers and revenue opportunities and
could harm our reputation and brand. In addition, our business interruption
insurance may not compensate us for all losses that could occur as a result of
system failures.
Security Concerns Could Hinder Our Online Sales And May Require Significant
Expenditures. Concern about the transmission of confidential information over
the Internet has been a significant barrier to online commerce over the
Internet. We cannot assure you that consumers will not limit their use of the
Internet to purchase products because of security concerns. We rely on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary to
15
It's a small planet.(SM)
<PAGE>
effect secure transmission of confidential information, such as customer credit
card numbers. We cannot assure you that advances in computer capabilities, new
discoveries in the field of cryptography or other events or developments will
not result in a compromise or breach of the security measures that we use to
protect customer transaction data. In addition, we may be required to make
significant expenditures to protect against the threat of security breaches or
to alleviate problems caused by such breaches.
Information Displayed On Our Web Site May Subject Us To Litigation And The
Related Costs. We may be subject to claims for defamation, libel, copyright or
trademark infringement or based on other theories relating to information
published on our Web site. We could also be subject to claims based upon the
content that is accessible from our Web site through links to other Web sites.
Defending against any such claims could be costly and divert the attention of
management from the operation of our business.
Government Regulation Of The Internet And Online Commerce Is Still
Developing And Could Increase Our Operating Costs Or Otherwise Adversely Affect
Our Business. There are existing laws and regulations that specifically
regulate communications or commerce on the Internet. Further, laws and
regulations that address issues such as user privacy, pricing, content,
taxation and the characteristics and quality of online products and services
are under consideration by federal, state, local and foreign governments and
agencies. New laws or regulations relating to the Internet, or new applications
or interpretations of existing laws, could adversely affect our business by
increasing our operating costs or otherwise.
RISKS RELATED TO THIS OFFERING
Our Existing Stockholders Will Exercise Significant Control And Could Make
Decisions That Adversely Affect New Investors. We expect that the Wyly family
will continue to exercise significant control over our direction and management
following the closing of this offering. In addition, our directors and
executive officers and their affiliates will, in the aggregate, own
approximately 12.5% of the outstanding shares of GreenMountain.com common stock
upon the closing of this offering, or 12.0% if the underwriters exercise their
over-allotment option in full. As a result of their share ownership, these
stockholders will have a significant influence on all matters requiring
stockholder approval, including the election of directors. This concentration
of ownership could delay or prevent another person from acquiring control or
causing a change in control of GreenMountain.com, which may affect your ability
to resell your shares at a favorable price. See "Principal Stockholders."
Our Shares Have Never Been Publicly Traded And A Public Market May Not
Develop Or Be Liquid. Prior to this offering, there has been no public market
for our common stock. We cannot predict the extent to which a trading market
will develop or how liquid that market might become. The initial public
offering price for the shares will be determined by negotiations between us and
the representatives of the underwriters and may not be indicative of prices
that will prevail in the trading market following this offering. See
"Underwriting."
Our Stock Price Is Likely To Be Volatile And This Volatility Could Affect
Your Ability To Resell Your Shares At A Profit. The trading price of our common
stock is likely to be volatile. The stock market has experienced significant
price and volume fluctuations, and the market prices of technology company
stocks, particularly those of Internet-related companies, have been highly
volatile. As a result, you may not be able to resell your shares at a price
equal to or greater than the initial public offering price. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against the
issuing company, resulting in substantial costs and a diversion of management's
attention from the operation of its business. See "Underwriting."
Shares Eligible For Future Sale By Our Existing Stockholders May Adversely
Affect Our Stock Price. The market price of our common stock could drop due to
the sales of a large number of shares of our common stock or the perception
that such sales could occur. These factors could also make it more difficult to
raise funds through future offerings of common stock. After this offering,
37,546,500 shares of
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<PAGE>
common stock will be outstanding. Of these shares, the 12,000,000 shares sold
in this offering will be freely tradeable without restrictions under the
Securities Act of 1933, except for any shares purchased by our "affiliates," as
defined in Rule 144 under the Securities Act. The number of shares of common
stock outstanding would increase to 39,346,500 and the number of freely
tradeable shares would increase to 13,800,000 if the underwriters exercise
their over-allotment option in full. All of our officers, directors and
stockholders have entered into lock-up agreements pursuant to which they have
agreed not to offer or sell any shares of common stock for a period of 180 days
after the date of this prospectus without the prior written consent of
Prudential Securities, on behalf of the underwriters. Also, Prudential
Securities may, at any time and without notice, waive the terms of these lock-
up agreements specified in the underwriting agreement. Upon expiration of this
lock-up period, the shares owned by these persons prior to the closing of this
offering may be sold into the public market without registration under the
Securities Act in compliance with the volume limitations and other applicable
restrictions of Rule 144 under the Securities Act. After the date of this
prospectus, we intend to file one or more registration statements under the
Securities Act to register all shares of common stock issuable upon the
exercise of outstanding stock options or reserved for issuance under our 1999
Stock Option Plan and all shares of common stock reserved for issuance under
our 1999 Director Stock Award Plan. Those registration statements are expected
to become effective immediately upon filing, and subject to the vesting
requirements and exercise of the related options and the grant of stock awards
(as well as the terms of the lock-up agreements), shares covered by those
registration statements will be eligible for sale in the public markets, except
for any shares held by our "affiliates." See "Shares Eligible for Future Sale."
Investors Will Experience Immediate And Substantial Dilution And May
Experience Further Dilution. The initial public offering price of the common
stock in this offering will be substantially higher than the net tangible book
value per share of the common stock immediately after this offering. Therefore,
if you purchase shares of common stock in this offering, you will incur
immediate and substantial dilution of $5.95 per share in the net tangible book
value per share of common stock from the price you paid, assuming an initial
public offering price of $9.00 per share. The exercise prices of most of our
outstanding options are below the anticipated initial public offering price. To
the extent these options are exercised, you will experience further dilution.
See "Dilution."
Our Management Will Have Broad Discretion In Use Of Proceeds And It May Not
Effectively Utilize Those Funds. Our management will have broad discretion in
how we use the net proceeds of this offering. Investors will be relying on the
judgment of our management regarding the application of the net proceeds of
this offering. Our management's decision regarding use of the net proceeds may
not be the most effective utilization of those funds. See "Use of Proceeds."
Provisions In Our Governing Documents And Delaware Law Could Make
Transactions Beneficial To Our Stockholders More Difficult. Provisions of our
certificate of incorporation, our bylaws and Delaware law could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. See "Description of Capital Stock."
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements based largely on our
current expectations and projections about future events and financial trends
affecting the financial condition of our business. The words "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "expect" and similar
expressions identify these forward-looking statements. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions,
including those described above under the caption "Risk Factors." In light of
these risks and uncertainties, the forward-looking events and circumstances
discussed in this prospectus may not occur and actual results could differ
materially from those anticipated in the forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
17
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to GreenMountain.com from the sale of the
common stock in this offering, assuming an initial public offering price of
$9.00 per share, will be $98,345,000, after deducting underwriting discounts
and commissions and estimated offering expenses. The estimated net proceeds
would increase to $113,471,750 if the underwriters exercise their over-
allotment option in full.
The principal purpose of this offering is to obtain funds to be used as
working capital and for general corporate purposes. We currently anticipate
that we will use approximately 50% to 60% of the net proceeds for brand
awareness and marketing, 10% to 20% of the net proceeds for technology and
development, and 25% to 35% of the net proceeds for other general corporate
purposes, including acquisitions of or investments in strategic businesses or
technologies. We cannot assure you, however, that the amount of the net
proceeds of this offering actually applied for any particular use will not
differ from the amount we currently expect to use for that purpose.
As part of our general corporate purpose spending, we expect to allocate an
amount equal to 2% to 6% of the net proceeds to make substantial contributions
to the political process and for public education. The purpose of these
expenditures will be to help accelerate the deregulation of the electric
utility industry and to help impose on the sources of industrial air pollution
the costs of their pollution.
We are exploring, and expect from time to time in the future to explore,
possible acquisitions or investments that would further our business
objectives. We currently have no commitments or agreements relating to any
acquisition or investment in any strategic business or technologies, except as
described in "Business--Our Web Site" below.
We have obtained an advance of $5.0 million under our funding agreement with
Green Funding I, L.L.C., an investment vehicle managed by the Wyly family, to
permit us to meet our working capital requirements. We will use a portion of
the net proceeds to repay in full this advance and any similar advances under
the funding agreement that we may obtain prior to the closing of this offering.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Related Party Transactions--Subsequent Transactions--Working
Capital Funding Commitment."
As of the date of this prospectus, we cannot specify, other than as
indicated above, the particular uses for the net proceeds to be received upon
the closing of this offering. Accordingly, our management will have broad
discretion in the application of the net proceeds. See "Risk Factors--Risks
Related to this Offering--Our Management Will Have Broad Discretion in Use of
Proceeds and It May Not Effectively Utilize Those Funds."
Pending these uses, the net proceeds of this offering will be invested in
short-term, interest-bearing, investment-grade securities or guaranteed
obligations of the U.S. Government.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock, and we
do not anticipate declaring or paying any cash dividends on our common stock in
the foreseeable future. We intend to retain any future earnings for use in the
operation of our business.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. Our
capitalization is presented:
.on an actual basis, but reflecting our conversion from a limited liability
company to a corporation as if that conversion had occurred as of March
31, 1999; and
.as adjusted to reflect the sale of the 12,000,000 shares of common stock
offered in this offering at an assumed initial public offering price of
$9.00 per share, after deducting underwriting discounts and commissions
and estimated offering expenses, as if this offering had been completed as
of March 31, 1999. See "Use of Proceeds."
You should read this information together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and the notes to those statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
At March 31, 1999
-------------------------
Actual As Adjusted
-------- -----------
(In thousands)
<S> <C> <C> <C>
Cash................................................. $ 20,476 $118,821
======== ========
Long-term obligations................................ $ -- $ --
Stockholders' equity:
Common stock, $0.01 par value, 150,000,000 shares
authorized; 25,546,500 shares outstanding (actual);
37,546,500 shares outstanding (as adjusted)........ 255 375
Additional paid-in capital.......................... 103,622 201,847
Notes receivable.................................... (5,108) (5,108)
Deferred compensation............................... (1,636) (1,636)
Accumulated deficit................................. (79,696) (79,696)
-------- --------
Total stockholders' equity.......................... 17,437 115,782
-------- --------
Total capitalization................................ $ 17,437 $115,782
======== ========
</TABLE>
The number of shares of common stock reflected as issued in the table above,
both on an actual basis and on an adjusted basis, does not reflect shares that
may be issued upon the exercise of options or warrants. You should be aware
that we are permitted, and in some cases obligated, to issue additional shares
of common stock. If and when we issue these shares, the percentage of the
common stock you own may be diluted. The following is a summary of additional
shares of common stock that may be issued pursuant to the underwriters' over-
allotment option and that we have currently approved, or we expect to approve,
for issuance upon the exercise of options and warrants or grant of stock awards
after this offering:
. 1,800,000 shares issuable upon the exercise of the underwriters' over-
allotment option;
. 6,374,559 shares issuable upon the exercise of the options outstanding as
of the date of this prospectus;
. 3,012,066 shares available for issuance upon the exercise of options
awarded under our 1999 Stock Option Plan in the future, including an
option to purchase 462,500 shares of common stock expected to be granted
to Sam Wyly, an option to purchase 360,000 shares of common stock
expected to be granted to Dennis Crumpler, an option to purchase 675,000
shares of common stock expected to be granted to Dennis Kelly, and
options to purchase an aggregate of 449,000 shares of common stock
expected to be granted to a new director nominee, nine new employees and
four new advisors, in each case in connection with this offering;
. 150,000 shares available for issuance under our 1999 Director Stock Award
Plan; and
. 11,940 shares issuable upon the exercise of warrants outstanding as of
the date of this prospectus.
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<PAGE>
DILUTION
Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock
from the initial public offering price. Net tangible book value represents the
amount of our total tangible assets less our total liabilities, divided by the
number of shares of common stock outstanding.
.At March 31, 1999, our net tangible book value was $16,194,862 or $0.63
per share on an actual basis, but reflecting our conversion from a limited
liability company to a corporation as if that conversion had occurred as
of March 31, 1999.
.After giving effect to the sale of the 12,000,000 shares of common stock
offered in this offering at an assumed initial public offering price of
$9.00 per share and after deducting underwriting discounts and commissions
and estimated offering expenses, as if this offering had been completed as
of March 31, 1999, our pro forma net tangible book value on March 31, 1999
would have been $114,539,862 or $3.05 per share.
This represents an immediate increase in the net tangible book value of
approximately $2.42 per share to our existing stockholders and an immediate and
substantial dilution of $5.95 per share to new investors purchasing common
stock in this offering. The following table illustrates this per-share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................... $9.00
Net tangible book value as of March 31, 1999................. $0.63
Increase attributable to new investors....................... 2.42
Pro forma net tangible book value after this offering......... 3.05
-----
Dilution to new investors..................................... $5.95
=====
</TABLE>
The following table summarizes as of March 31, 1999, on a pro forma basis
assuming our conversion from a limited liability company to a corporation had
occurred as of that date, the differences between the number of shares
purchased from GreenMountain.com, the total consideration paid and the average
price paid per share assuming an initial public offering price of $9.00.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price per
Number Percent Amount Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 25,546,500 68.0% 103,128,780 48.8% $ 4.04
New investors................. 12,000,000 32.0 108,000,000 51.2 9.00
---------- ----- ------------ -----
Total..................... 37,546,500 100.0% $211,128,780 100.0%
========== ===== ============ =====
</TABLE>
The discussion and table above assumes no exercise of any stock options or
warrants outstanding as of March 31, 1999. The following table sets forth the
number of shares of common stock purchasable upon the exercise of options and
warrants outstanding as of the date of this prospectus and the related exercise
price.
<TABLE>
<CAPTION>
Number of Shares
Purchasable Under
Stock Options or Warrants Exercise Price
------------------------- --------------
<S> <C>
11,940 $75.59
41,679 $75.40
47,883 $75.20
4,851,300 $ 3.33
1,068,000 $ 6.67
78,000 $13.33
287,697 $12.00
</TABLE>
In addition, in connection with this offering, we expect to grant to Sam Wyly
an option to purchase 462,500 shares of common stock, Dennis Crumpler an option
to purchase 360,000 shares of common stock, Dennis Kelly an option to purchase
675,000 shares of common stock and to a new director nominee, nine new
employees and four new advisors options to purchase an aggregate of 449,000
shares of common stock, in each case at an exercise price per share equal to
the initial public offering price.
To the extent any options having an exercise price lower than the initial
public offering price are exercised, there will be further dilution to new
investors. See "Risk Factors--Risks Related to This Offering--Investors Will
Experience Immediate and Substantial Dilution and May Experience Further
Dilution."
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SELECTED FINANCIAL INFORMATION
The following selected financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes to those statements
included elsewhere in this prospectus. The statement of operations data for the
period from inception on February 26, 1997 through December 31, 1997, for the
year ended December 31, 1998 and for the three-month periods ended March 31,
1998 and 1999, and the balance sheet data at December 31, 1997 and 1998 and
March 31, 1999, are derived from our financial statements included elsewhere in
this prospectus. The statement of operations per share data reflect our
conversion from a limited liability company to a corporation as if that
conversion had occurred as of the beginning of the period indicated. See
"Related Party Transactions--Reorganization Transaction." The historical
results presented here are not necessarily indicative of future results.
<TABLE>
<CAPTION>
Three Months Ended
February 26, 1997 March 31,
(Inception) to Year Ended --------------------
December 31, 1997 December 31, 1998 1998 1999
----------------- ----------------- ------- -----------
(Unaudited)
(In thousands, except share data)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues............... $ -- $ 1,530 $ -- $ 4,150
Cost of sales.......... -- 1,097 -- 3,096
Operating Expenses:
Customer and regional
operations............ 982 4,834 652 2,270
Sales and marketing.... 4,337 33,010 4,065 12,375
General and
administrative........ 1,742 4,226 1,012 3,928
Technology and
development........... 2,048 2,918 833 2,268
Depreciation and
amortization.......... 90 768 169 223
Organizational costs... 4,706 709 -- --
-------- -------- ------- --------
Total operating
expenses............. 13,905 46,465 6,731 21,064
-------- -------- ------- --------
Operating loss......... (13,905) (46,032) (6,731) (20,010)
Interest income
(expense), net........ 43 (7) 24 215
-------- -------- ------- --------
Net loss............... $(13,862) $(46,039) $(6,707) $(19,795)
======== ======== ======= ========
Basic and diluted loss
per common share...... $ (16.70) $ (6.33) $ (3.53) $ (0.89)
======== ======== ======= ========
Basic and diluted
weighted average
common shares
outstanding........... 830 7,272 1,899 22,327
======== ======== ======= ========
<CAPTION>
At December 31, At March 31, 1999
----------------------------------- --------------------
As
1997 1998 Actual Adjusted(1)
----------------- ----------------- ------- -----------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash................... $ 1,933 $ 5,654 $20,476 $118,821
Working capital........ 141 (2,268) 14,854 113,199
Total assets........... 4,183 11,411 29,750 128,095
Total liabilities...... 2,445 11,959 12,313 12,313
Stockholders' equity... 1,738 (548) 17,437 115,782
</TABLE>
- --------
(1) As adjusted to reflect the sale of the 12,000,000 shares of common stock
offered in this offering at an assumed initial public offering price of
$9.00 per share after deducting underwriting discounts and commissions and
estimated offering expenses, as if this offering had been completed as of
March 31, 1999. See "Use of Proceeds" and "Capitalization."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes to those statements included elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in these forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed below and elsewhere in this prospectus, particularly in
"Risk Factors."
Overview
We were formed as a limited liability company in February 1997. On June 18,
1999, we converted from a limited liability company to a corporation. See
"Related Party Transactions--Reorganization Transaction."
Between August 1997 and March 31, 1998, Green Funding I and Green Funding
II, investment vehicles managed by the Wyly family, contributed to us a total
of $70.0 million. In August 1997, Green Mountain Power Corporation, through a
subsidiary, contributed to us
.service marks, including our Choose wisely. It's a small planet.SM and
Green Mountain Energy ResourcesSM service marks,
.costs incurred by Green Mountain Power Corporation for research conducted
prior to formation of the limited liability company to evaluate the
viability of a nationally-marketed, premium-priced green electricity
product, including marketing studies and analyses and
.its rights under agreements with third-party service providers,
valued at $4.0 million as provided in the limited liability company agreement
in exchange for a 33% equity interest, after the effect of the return of
capital discussed below, in the limited liability company. In accordance with
the limited liability company agreement, the $4.0 million value associated with
Green Mountain Power Corporation's initial capital contribution was credited to
the subsidiary's capital account. In August 1997, Green Funding I contributed
$8.0 million and committed to contribute an additional $22.0 million in
exchange for a 67% equity interest. Immediately following the initial
contribution by Green Funding I, a subsidiary of Green Mountain Power
Corporation received a distribution from the limited liability company of $4.0
million, representing reimbursement for market studies and analyses and other
development costs incurred by Green Mountain Power Corporation prior to the
formation of the limited liability company based on a provision in the limited
liability company agreement. By December 1998, as a result of capital
contributions made by Green Funding I after August 1997, the equity interest
owned indirectly by Green Mountain Power Corporation had been diluted to
approximately 1%. In late December 1998, we negotiated with Green Mountain
Power Corporation and agreed to pay the subsidiary of Green Mountain Power
Corporation $1.0 million in cash, the management committee's estimate of the
fair value, for its remaining 1% equity interest, a non-compete agreement,
rights to the Green Mountain name and other concessions. This agreement enabled
us to eliminate our ties to a traditional regulated utility that had elected
not to contribute additional equity to us. In addition, this agreement includes
provisions favorable to us relating to non-competition and the use of the Green
Mountain name. During January and February 1999, we raised $35.2 million in
cash through private equity offerings. See "Related Party Transactions--
Subsequent Transactions," "Principal Stockholders" and Notes (1) and (11) to
our financial statements included elsewhere in this prospectus.
Since commencing active operations in August 1997, we have:
.Established relationships with several outsourcing partners to perform
most of the marketing, sales and customer service functions necessary for
the operation of our business;
.Established relationships with environmental groups and entered into
affinity marketing programs with some of them;
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.Designed and built our Information Network to provide for the efficient
communication of information with and among our outsourcing partners;
.Integrated our Web site into our Information Network to enable consumers
to purchase our electricity products online;
.Implemented an aggressive marketing campaign using the Internet and other
media aimed at creating awareness of the Green Mountain brand in
California, which opened for competition on April 1, 1998, and
Pennsylvania, which opened for competition on January 1, 1999;
.Established supply relationships for green electricity in California and
Pennsylvania;
.Commenced marketing green electricity to residential customers in the
deregulated electric utility markets of California and Pennsylvania;
.Established supply relationships for Green Mountain SolarSM systems and
commenced marketing them in California and Pennsylvania; and
.Recruited a management team with substantial expertise in brand
development and marketing, as well as Internet-related technologies.
As of March 31, 1999, we were serving approximately 19,900 customers in
California. We began selling electricity products in Pennsylvania on January 1,
1999. As of March 31, 1999, we were serving approximately 48,100 customers in
Pennsylvania.
We had 28 employees as of September 1, 1997. As of March 31, 1999, we had 68
employees, including management and staff personnel, and an additional seven
temporary employees. We will add additional management and staff personnel as
necessary, but we expect to continue to rely heavily on outsourcing
arrangements.
We have only a limited operating history upon which you can evaluate our
business and prospects. We have not achieved profitability, and expect to incur
net losses in 1999 and subsequent fiscal periods. We expect our costs of sales
and operating expenses, especially in the areas of sales, marketing and brand
promotion, to increase significantly, and, as a result, will need to generate
significant revenues to achieve profitability. Even if we do achieve
profitability, we may be unable to sustain or increase profitability on a
quarterly or annual basis in the future. We believe that period-to-period
comparisons of our operating results are not meaningful and that results for
any particular period should not be relied on as an indication of future
performance. See "Risk Factors."
Results Of Operations--Year Ended December 31, 1998 Compared To The Year Ended
December 31, 1997
Revenues And Cost Of Sales
We did not generate revenues until the last half of 1998. Revenues increased
from zero in 1997 to $1.5 million in 1998. Cost of sales representing
electricity wholesale costs increased from zero in 1997 to $1.1 million in
1998. These increases were attributable to the commencement of electric service
to customers in California beginning April 1, 1998.
Customer And Regional Operations Expense
Customer and regional operations expense increased by $3.8 million from $1.0
million to $4.8 million from 1997 to 1998. This expense is comprised primarily
of the cost of our billing and customer care operations and expenses incurred
for operations within particular states, including general operating expenses,
supply personnel, legal and regulatory expenses and consulting and lobbying
expenses. Overall, the increase from 1997 to 1998 primarily represents:
.Approximately a $1.5 million increase attributable to the commencement of
billing activity when the California retail electricity market opened for
competition;
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<PAGE>
.Approximately a $0.9 million increase in regional operating activities
within states expected to open their electric utility markets for retail
competition in the foreseeable future;
.The preparation for commencement of service to customers in Pennsylvania
on January 1, 1999; and
.Costs associated with increased business development efforts.
In 1998, we entered into two electricity supply agreements to serve our
customers in California, and we entered into three electricity supply
agreements to cover anticipated customer requirements in Pennsylvania to
commence in 1999.
Sales And Marketing Expense
Sales and marketing expense increased by $28.7 million from $4.3 million to
$33.0 million from 1997 to 1998. Our sales and marketing expenses consist
primarily of payroll and the costs related to (1) building brand awareness,
including traditional media advertising, such as television, radio, print and
billboards, and special events and promotions and (2) direct marketing,
including direct mail, affinity programs, Internet and inbound and outbound
telemarketing. Total sales and marketing costs included the following amounts:
. Approximately $10.0 million for the year ended December 31, 1998 and
$0.7 million for the period from inception on February 26, 1997 through
December 31, 1997 for building brand awareness; and
. Approximately $17.4 million for the year ended December 31, 1998 and
$2.4 million for the period from inception on February 26, 1997 through
December 31, 1997 for direct marketing costs in Pennsylvania and
California.
These increases are primarily attributable to the commencement of service in
California in April 1998 and the anticipation of the commencement of service in
Pennsylvania effective January 1, 1999. These increases involve our use of
marketing services from The Cullinan Group in 1998. We expect sales and
marketing expense to continue to increase as we expand our green electricity
business to additional states and expand the products offered through our Web
site.
General And Administrative Expense
General and administrative expenses increased $2.5 million from $1.7 million
to $4.2 million from 1997 to 1998. This expense is comprised primarily of
payroll and miscellaneous expenses relating to our administrative, human
resources, finance, legal and regulatory functions. Total payroll costs
included in general and administrative expense were approximately $2.8 million
for the year ended December 31, 1998 and $1.1 million for the period from
inception on February 26, 1997 through December 31, 1997. The increase in
payroll costs reflects the increase in the number of employees needed to
accommodate our growth in 1998. Total miscellaneous costs related to our
administrative, human resources, finance, legal and regulatory functions were
approximately $1.4 million for the year ended December 31, 1998 and $0.6
million for the period from inception on February 26, 1997 through December 31,
1997. Miscellaneous costs primarily included costs related to travel, office
supplies and meals and entertainment due to costs incurred for activities
supporting the entry into deregulated electric utility markets.
Technology And Development Expense
Technology and development expense increased $0.9 million from $2.0 million
to $2.9 million from 1997 to 1998. This expense is comprised primarily of
payroll, general operating expenses and costs of consultants relating to the
preliminary development and operation of our information technology systems.
The increase in this expense primarily relates to information technology
consulting services provided by Sterling Software. The increase was also
partially attributable to increased payroll and general operating costs related
to operating in 1998 for a full year rather than less than six months in 1997.
We anticipate this expense will increase in future periods as we continue to
implement improvements in our Web site and our Information Network.
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Depreciation And Amortization
Depreciation and amortization increased $0.7 million from $0.1 million to
$0.8 million from 1997 to 1998. Our first full year of operations was 1998.
Depreciation and amortization for 1998 represent one full year, while
depreciation and amortization for 1997 represents a period from commencement of
operations in August 1997 to December 31, 1997. This increase is also due to
$0.9 million of property and equipment additions during 1998.
Organizational Costs
Organizational costs decreased $4.0 million from $4.7 million to $0.7
million from 1997 to 1998. In 1997, these costs were comprised primarily of
$4.0 million of costs incurred by Green Mountain Power Corporation prior to the
formation of the limited liability company for research relating to evaluating
the viability of a nationally-marketed, premium priced green electricity
product, including marketing studies and analyses. Unamortized organization
costs in the amount of $0.3 million were written off in the fourth quarter of
1998, in accordance with a new accounting pronouncement.
Interest Income/(Expense), Net
Interest income/(expense), net, increased $0.1 million from 1997 to 1998
resulting primarily from interest on cash and cash equivalents offset in part
by interest expense on a short-term, $10.0 million loan. This loan was both
obtained and repaid in 1998. Our operations have been funded almost exclusively
by capital contributions.
Income Tax Expense
No benefit for federal and state income taxes is reported in our financial
statements because we elected to be taxed as a partnership prior to our
conversion from a limited liability company to a corporation. For the periods
presented, the federal and state tax effects of our tax losses were the
responsibility of Green Funding I as a member of the limited liability company
in accordance with our limited liability company agreement. Because we
converted to a corporation on June 18, 1999, we will now account for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes. If we had applied this statement for the
period from our inception through December 31, 1998, the deferred tax asset
generated, primarily from net operating loss carry forwards, would have been
offset by a full valuation allowance.
Results Of Operations--Three Months Ended March 31, 1999 Compared To The Three
Months Ended March 31, 1998
Revenues And Cost Of Sales
Revenues increased from zero in the first quarter of 1998 to $4.1 million in
the first quarter of 1999. Cost of sales increased from zero in the first
quarter of 1998 to $3.1 million in the first quarter of 1999. The increase was
attributable to the commencement of electric service to customers in
Pennsylvania and California.
Customer And Regional Operations Expense
Customer and regional operations expense increased by $1.6 million from $0.7
million to $2.3 million from the first quarter of 1998 to the first quarter of
1999. The increase primarily represents:
. Approximately a $0.7 million increase attributable to the commencement
of billing activity when the Pennsylvania retail electricity market
opened for competition on January 1, 1999;
. Approximately a $0.7 million increase in regional operating expenses
within states expected to open their electric utility markets for retail
competition in the foreseeable future; and
. Costs associated with increased business development efforts.
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<PAGE>
Sales And Marketing Expense
Sales and marketing expense increased by $8.3 million from $4.1 million to
$12.4 million from the first quarter of 1998 to the first quarter of 1999. Our
sales and marketing expenses consist primarily of payroll and the costs related
to (1) building brand awareness, including traditional media advertising, such
as television, radio, print and billboards, and special events and promotions
and (2) direct marketing, including direct mail, affinity programs, Internet
and inbound and outbound telemarketing. Total sales and marketing costs
included the following amounts:
. Approximately $3.7 million for the quarter ended March 31, 1999 and $0.8
million for the quarter ended March 31, 1998, for building brand
awareness; and
. Approximately $5.7 million for the quarter ended March 31, 1999 and $2.6
million for the quarter ended March 31, 1998, for direct marketing costs
in Pennsylvania and California.
These increases are primarily attributable to the commencement of service in
Pennsylvania effective January 1, 1999. These increases as discussed above
involve our use of marketing services from The Cullinan Group. The first
quarter of 1999 amounts also reflect approximately $0.4 million of compensation
expense associated with the difference between the purchase price and exercise
price of shares and options issued and their fair market value at the date of
sale or grant. We expect sales and marketing expense to continue to increase as
we expand our green electricity business to additional states and expand the
products offered through our Web site.
General And Administrative Expense
General and administrative expenses increased $2.9 million from $1.0 million
for the first quarter of 1998 to $3.9 million for the first quarter of 1999.
This expense is comprised primarily of payroll and miscellaneous expenses
relating to our administrative, human resources, financial, legal and
regulatory functions. Total payroll costs included in general and
administrative expense were approximately $2.5 million for the first quarter of
1999 and $0.7 million for the first quarter of 1998. Total general and
administrative expense for the first quarter of 1999 reflects the recording of
approximately $2.1 million of compensation expense associated with the
difference between the purchase price and the exercise price of shares and
options issued and their fair market value at the date of sale or grant. We
charged $1.5 million of the total compensation expense to payroll expenses and
$0.6 million to consulting expenses. Total miscellaneous costs related to our
administrative, human resources, finance, legal and regulatory functions were
approximately $1.4 million for the first quarter of 1999 and $0.3 million for
the first quarter of 1998. Miscellaneous costs primarily included costs related
to travel, office supplies and meals and entertainment.
Technology And Development Expense
Technology and development expense increased $1.5 million from $0.8 million
for the first quarter of 1998 to $2.3 million for the first quarter of 1999.
This expense is comprised primarily of payroll, general operating expenses and
costs of consultants relating to the preliminary development and operation of
our information technology systems and our Web site. The increase in this
expense was primarily attributable to increased payroll and general operating
costs related to increased consultant services for current operations provided
by Sterling Software and increased network development. We anticipate this
expense will increase in future periods as we continue to implement
improvements in our Web site and our Information Network.
Depreciation And Amortization
Depreciation and amortization for the first quarter of 1999 remained
consistent with the first quarter of 1998. Capitalized assets include primarily
computers and furniture and fixtures that were purchased when we commenced
operations.
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Interest Income/(Expense), Net
The increase in interest income/(expense), net, of $0.2 million from the
first quarter 1998 to the first quarter 1999 resulted primarily from interest
earned on cash and cash equivalents as a result of our equity offerings in
January and February of 1999.
Liquidity And Capital Resources
Our operations have been funded almost entirely using proceeds raised
through the sale of equity interests.
Net cash used in operating activities was $12.3 million for 1997, $39.9
million for 1998, $5.1 million for the first quarter of 1998 and $19.1 million
for the first quarter of 1999. The period-to-period increases in net cash used
in operating activities resulted primarily from increasing net losses,
partially offset by increases in accrued expenses and accounts payable.
Net cash used in investing activities was $1.3 million for 1997, $0.8
million for 1998, $0.1 million for the first quarter of 1998 and $0.2 million
for the first quarter of 1999, entirely the result of purchases of property
and equipment, primarily computer equipment and furniture and fixtures.
Net cash provided by financing activities was $15.6 million for 1997 and
$44.4 million for 1998. Net cash provided by financing activities in both 1997
and 1998 resulted primarily from capital contributions by Green Funding I.
During the first quarter of 1999, we raised $35.2 million of cash through
private equity offerings.
We are seeking additional investors through this offering to obtain working
capital for brand development and marketing, product development, enhancement
to our Web site and technology systems, expansion of our green electricity
business into new deregulated markets, environmental programs and other
general corporate purposes. The implementation of our expanded business plan
is dependent on this offering. Although we have no material commitments for
capital expenditures, we anticipate a substantial increase in our capital
expenditures and lease commitments consistent with anticipated growth in
operations, infrastructure and personnel. These expenditures will primarily be
for computer equipment, furniture and fixtures and leasehold improvements. We
also have total minimum lease obligations of $0.4 million under cancelable
operating leases. Several of our outsourcing agreements have minimum financial
commitments as follows:
. Our outsourcing agreement with en.able, L.L.C. currently commits us to
pay minimum monthly service charges for call center service and billing
services in the amount of $112,500;
. Our teleservices agreement with ICT Group, Inc., which we may terminate
on 30 days' notice, commits us to pay fixed monthly fees of
approximately $8,700, as well as actual costs associated with service
representatives' time and communication costs incurred resulting from
inbound and outbound calls;
. Our marketing services agreement with The Cullinan Group requires us to
pay a minimum monthly retainer fee of $30,000 as well as monthly advance
payments in the amount of anticipated expenses less the monthly retainer
fee; and
. Our marketing agreement with Yahoo! Inc. commits us to pay approximately
$6,000,000 over the one-year term of the contract commencing in May
1999, as well as payment of referral fees, not to exceed $400,000 in the
aggregate, for new energy services accounts opened as a result of the
Yahoo! promotions. Expenses, including referral fees, will be recognized
under this contract throughout the term of the contract and in a manner
consistent with receipt of services provided by Yahoo!
Our contracts with four electricity suppliers provide for separate letters
of credit or equivalent financial assurances to satisfy credit requirements.
The amounts of the letters of credit range from 15 days' to two months' of
receivables based on our load forecast. In addition, we have delivered to one
electricity supplier irrevocable letters of credit in association with the
supplier's purchase and installation of three wind power
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<PAGE>
turbines. We also delivered letters of credit to regulators securing our
performance as an energy service provider. Total supply and regulatory letters
of credit outstanding at December 31, 1998 were $2,765,230 and at March 31,
1999 were $2,477,251.
On June 18, 1999, we received a letter on behalf of Andersen Weinroth
Capital Corporation and Andersen, Weinroth & Co., L.P. claiming that (1) a
warrant held by Andersen Weinroth Capital Corporation entitled it to purchase
342,000 shares of common stock at $2.50 per share, rather than 11,343 shares of
common stock at a price of $75.59 per share as determined by GreenMountain.com,
and (2) Andersen, Weinroth & Co., L.P. was entitled to a payment of $330,000
upon consummation of our initial public offering. On June 23, 1999, a complaint
was filed in the Supreme Court of the State of New York, County of New York
(Index No. 603019/99), based on these assertions. We believe that the
assertions are without merit and intend to defend vigorously these legal
proceedings. We are presently unable to estimate with reasonable certainty the
likelihood of success of the claims or the amount of the loss, if any, that we
may incur as a result of the claims.
If we are unable to obtain financing through this offering, we will curtail
our current growth plans and we believe our existing cash resources, together
with up to $22.0 million available under a funding agreement with Green Funding
I, will be sufficient to fund our operations at least through 1999. There is
currently an advance of $5.0 million outstanding under the funding agreement.
See "Related Party Transactions--Subsequent Transactions--Working Capital
Funding Commitment" and Note (1) to our financial statements included elsewhere
in the prospectus. We believe that, assuming this offering closes, the net
proceeds from the offering, together with cash resources, will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures
through the end of 2000. However, even prior to the end of 2000 there may arise
circumstances in which we need to raise additional funds through public or
private financings or other arrangements, and we cannot assure you that we will
be able to do so. The failure to raise additional funds when needed could have
a material adverse effect on our business, results of operations and financial
condition.
Market Risk Disclosures
We currently have no indebtedness, hold no derivative instruments and do not
earn foreign-sourced income. Accordingly, changes in interest rates or currency
exchange rates do not generally have a direct effect on our financial position.
Our commodity price risk is limited, as our electricity supply contracts are
generally short-term requirements contracts that match the aggregate customer
requirements that are assigned to them and they were not entered into for
trading or speculative purposes. Under some of these contracts, either we or
our suppliers can discontinue the assignment of additional customers with
advance notice. The wholesale price is either fixed or includes a fixed margin
to the wholesale clearing price for the term of the contracts. In the future,
as our electricity requirements reach substantial levels, we may increase the
volume of electricity contracts that we buy directly from electricity
wholesalers other than under requirements contracts in order to reduce our
overall costs of electricity supply and allow us greater marketing flexibility.
As of March 31, 1999, we did not face the level of equity price risk that we
expect to be subject to subsequent to this offering. To the extent that changes
in interest rates and currency exchange rates affect general economic
conditions, we would be affected by such changes.
Year 2000 Readiness Disclosure
State Of Readiness
On January 1, 2000, technology systems and software applications may fail or
malfunction due to the inability to distinguish between 20th century dates and
21st century dates. We have defined "Year 2000 readiness" or "Year 2000 ready"
as meaning a hardware or software system is suitable for continued use into the
Year 2000 and beyond. Specifically, date dependant systems may represent the
year 2001 as "01," but will not cease to perform the functions necessary for
its use.
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We have determined during our initial assessment that our internal corporate
systems, including both hardware and software applications, are Year 2000
ready, with some exceptions. Those systems determined not to be Year 2000 ready
and which are critical to our operations will either be replaced or upgraded in
order to be Year 2000 ready. We expect to achieve Year 2000 readiness for all
of our systems by the end of the third quarter of 1999. The phases of our Year
2000 readiness program are as follows: (1) Planning and Awareness,
(2) Assessment, and (3) Remediation and Testing.
. Our Planning and Awareness phase includes the creation and maintenance
of an area of our Web site to present Year 2000 contact information,
links to additional sites and GreenMountain.com Year 2000 statements.
Employee awareness consists of company newsletters, Intranet/extranet
pages, inter-office bulletins and staff meeting updates. Partners and
suppliers will receive mailings, Year 2000 surveys and telephone calls,
and, if appropriate, site-visits. This phase is currently approximately
80% complete and is expected to be completed by the end of the third
quarter of 1999.
. The overall Assessment phase includes risk assessment within three areas
of our business: corporate operations, business partners and wholesale
power suppliers. Risks will be ranked by low, medium and high depending
on their perceived impact to our business. Corporate inventory is
included in this phase to determine all components that comprise the
corporate information systems and building mechanical systems (including
heating, ventilation, air conditioning and security). Questionnaires and
telephone calls, visits to Web sites and requests for readiness
disclosures will be used to determine the initial state of readiness and
Year 2000 preparations of all parties external to GreenMountain.com. As
part of Assessment, inventory is approximately 30% complete overall, with
internal corporate systems inventory approximately 40% complete and
outsourced business systems inventory approximately 20% complete. Year
2000 readiness of corporate systems is substantially complete due to the
fact that we use current software and have no proprietary systems. We
have been researching Web sites of the manufacturers of our corporate
systems and have found that with the installation of patches or service
packs, this software is already ready or will be ready by the end of
1999. The internal figure will increase significantly when the
implementation of Microsoft SMS, a package which will assist us in
assessing our Year 2000 readiness, is complete. The percentage of
outsourced business systems inventory will increase significantly when we
receive the feedback to our inquiries on vendor and partner Year 2000
readiness in response to the systems they employ to meet our
requirements. We expect the overall Assessment phase to be completed by
the end of the second quarter of 1999.
. Remediation and Testing of corporate systems includes using Microsoft SMS
to continue to ensure ongoing Year 2000 readiness of corporate systems
and software, working with vendors on building mechanical systems and
testing of Year 2000 readiness of applications, such as our financial
package and payroll system. Supplier remediation and testing involves the
testing of transactions across our vendor/partner network. This phase is
currently approximately one-third complete for corporate internal
systems' remediation and we expect to complete all remediation no later
than the beginning of the fourth quarter of 1999.
In addition to building mechanical systems, we distinguish technology
systems into two categories, business systems and corporate systems. The
business systems consist of the hardware and software employed to support the
business operations of GreenMountain.com, including third-party service
providers. The corporate systems consist of the hardware and software required
to support the corporate infrastructure such as our network servers, desktop
computers, desktop applications and the financial system.
. For business systems, we have outsourced the majority of our operations.
We have relationships with electricity suppliers, local utility
distribution companies, billing centers, call centers, customer
acquisition, mailing list providers, Web content providers, network
managers, and marketing groups. We have begun research into the state of
Year 2000 readiness with each of the organizations we do business with.
We believe we have a level of comfort that each will be able to continue
functioning and fulfilling their obligations to us. To formalize this, we
are in the process of preparing material to be sent
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to each supplier asking them to certify that the equipment and software
they employ to meet their contractual obligations to us has been tested
and will be suitable for continued use into the Year 2000 and beyond.
Additionally, we will be reviewing the business sustainability of our key
suppliers of billing and customer care and some of their information
technology functions. Lastly, our network manager service provider will be
assisting in the coordination of a system level test plan that will push
and pull transactions across our network to and from our different
suppliers and partners. The test data will be designed to test
transactions with key dates aimed at confirming Year 2000 readiness. We
expect to complete the mailing, review of business sustainability and
testing by the end of the third quarter of 1999.
. For corporate systems, we are a young company with new technology and no
legacy applications. All of our hardware is less than two years old and
is still supported by vendors and suppliers. Corporate software consists
mainly of desktop applications, the financial system and the payroll
system--preparing these applications to be Year 2000 ready consists of
applying patches and installing software upgrades. We are in the process
of installing Microsoft SMS, which will enable our organization to
inventory every desktop and server to determine the extent of those
items' Year 2000 readiness. Estimated time of completion for this project
is July 1999. We believe that in the majority of cases, we will be
applying software upgrades or patches to correct potential issues that
could result from the Year 2000 issue. Remediation of non-ready systems
is expected to be completed during the third quarter of 1999.
. We have performed an internal risk assessment to identify mechanical and
building systems that could be at risk for Year 2000-related issues. As
part of the Year 2000 readiness effort, we have identified non-computer
technology and outside suppliers that may be susceptible to Year 2000
issues, including our local electricity supplier and our security access
system provider. Completion of assessment and testing of mechanical and
building systems is expected to be completed during the third quarter of
1999.
We have performed research on the Year 2000 readiness of each of our major
suppliers, including Sterling Software, en.able, PGI Companies, Midwest
Graphics, ICT Group, Transcom USA and our wholesale electricity suppliers,
Dynegy, Conectiv, Allegheny Energy, DTE Co-Energy and PacifiCorp. We have
relied on Internet postings, SEC filings, Year 2000 readiness disclosure and
documentation provided by suppliers and partners. The research has obtained
standard responses on Year 2000 readiness, specifically that each company is
either Year 2000 ready or in the process of becoming Year 2000 ready. For those
business systems that we deem critical to our operations and business
sustainability, we will require a more detailed response. We are in the process
of preparing material to be sent to these suppliers and vendors and expect that
letters will be sent by the end of the second quarter of 1999, requesting
responses to be received in the following quarter. These letters are being
prepared and sent in tandem with our system wide test to ensure that these
suppliers and vendors are in fact Year 2000 ready. We expect to complete this
process during the third quarter of 1999. However, we cannot assure you that
the failure of one of these third parties to be Year 2000 ready will not have a
material adverse effect on us. If we determine no later than September 1999
that an information technology service provider, outsourcing provider or
supplier will not be Year 2000 ready, we believe we will be able to select in a
timely manner alternatives which are Year 2000 ready.
Costs To Address Year 2000 Issues
In order to meet current and future business needs, we are assessing our
hardware and software applications and making them Year 2000 ready. We are also
utilizing the services of Sterling Software to assist with the integration
testing of data shared with our information technology service providers,
outsourcing providers and suppliers. We have expensed less than $0.1 million in
connection with our Year 2000 readiness efforts since inception through
March 31, 1999 and we expect to incur approximately $0.4 million during the
remainder of 1999. These costs represent work to be performed to both make our
corporate and business systems Year 2000 ready and to assess the Year 2000
readiness of our information technology service providers, outsourcing partners
and suppliers.
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Risks Associated With Year 2000 Issues
We are subject to external Year 2000-related failures or disruptions that
might generally affect industry and commerce, such as failures by energy
generation or utility distribution companies and related service interruptions.
These failures or disruptions are especially critical to us as a seller of
retail electricity products. Notwithstanding our Year 2000 efforts, the failure
of our systems or those of any of our information technology service providers,
outsourcing partners or suppliers, or the failure of the Internet generally, to
be Year 2000 ready could harm the operation of our systems or have unforeseen,
material adverse consequences to us. These consequences could include the
inability to bill our customers. All of these factors could materially
adversely affect our business, results of operations and financial condition.
Contingency Plans
We have no formal overall worst-case scenario because we divide up our Year
2000 risk into internal and external systems. An overall worst-case would be if
the highest risk areas of the internal and external were to occur
simultaneously. The internal corresponds to business sustainability and the
external deals with servicing our customers; accordingly, these two areas have
different priorities and different exposure to risks. We expect that at the
corporate level we would sustain no adverse effects due to the short-term loss
of corporate information technology systems. For our business systems, a long-
term disruption could impact our ability to serve customers, including customer
billing, customer service and our ability to interact with electric utility and
distribution companies. This would not, however, impact the ability for
customers to receive our energy products or electric distribution and
generation in general. As part of our contingency planning, which we expect to
complete no later than the beginning of the fourth quarter of 1999, we will use
risk assessment to develop contingency plans for worst-case scenarios in each
area of our business.
Recent Accounting Pronouncements
The Financial Accounting Standard Board (FASB) recently issued SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components in financial
statements. Comprehensive income, as defined, includes all changes to equity
(net assets) during a period from non-owner sources. SFAS No. 130 is effective
for financial statements for fiscal years beginning after December 15, 1997. We
have not had any transactions that are required to be reported in comprehensive
income.
The FASB recently issued SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. We do not believe we currently operate in
more than one segment.
The FASB, in June 1998, issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
derivative instruments embedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. A company may also implement SFAS No. 133 as of
the beginning of any fiscal quarter after June 16, 1998. SFAS No. 133 cannot be
applied retroactively. SFAS No. 133 must be applied to derivative instruments
and derivative instruments embedded in hybrid contracts that were issued,
acquired or substantively modified after December 31, 1997 (and, at the
company's election, before January 1, 1998). We do not have any derivative
instruments at this time; however, such instruments may be embedded in future
electricity contracts.
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The American Institute of Certified Public Accountants Statement of Position
(SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use, provides guidance on accounting for the cost of
computer software developed or obtained for internal use. SOP No. 98-1 is
effective for financial statements for fiscal years beginning after December
15, 1998. We do not expect that SOP No. 98-1 will have a material impact on our
financial statements. GreenMountain.com anticipates that in the second quarter
of 1999 it will begin capitalizing certain costs in accordance with SOP No. 98-
1 associated with projects that enter the development stage, including its Web
site development project.
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BUSINESS
Our Mission
GreenMountain.com uses the Internet and other media to offer environmentally
friendly electricity and other products to consumers. Our Web site--
www.greenmountain.com--will use the rich interactive resources of the Internet
to educate consumers about the environmental impact of their everyday purchases
and to make it easy and appealing for them to use those purchases as agents of
change for a cleaner and healthier environment. Our mission is to make Green
Mountain the leading brand for environmentally friendly products.
Based on number of customers served, we are the leading retailer of green
electricity to residential customers in Pennsylvania and California -- the two
states that have effectively opened their residential electricity markets to
competition. We intend to offer green electricity products in the deregulated
utility markets of other states that we determine can be entered on a cost-
effective basis. We will make that determination based primarily on the
population size and density of a particular state, the timing of deregulation
in that state and the proximity of that state to previously deregulated states
in which we are then competing. We also offer solar generation equipment.
We have very recently expanded our product offerings to include a Green
Mountain co-branded Visa card, ecological tours and vacations, electric
bicycles and environment-related books, and we expect to continue to expand our
selection of green consumer products.
The Opportunity
Public Concern About Environmental Problems Is High
Our environment faces serious problems.
.Air pollutants released by the burning of fossil fuels pose serious
threats to human health, ecosystems, visibility, crops and buildings.
.113 million Americans live in approximately 130 localities that fail air
quality standards.
.Smog (ground level ozone) contributes to respiratory ailments.
.Emissions of nitrogen oxide are a major contributor to formation of smog.
.Electric utility generation accounts for 30% of nitrogen oxide emissions
in the United States.
.The mixture of sulfur dioxide and nitrogen oxide causes acid rain,
resulting in the acidification of lakes and streams, damage to trees at
high elevations and accelerated decay of buildings and paints.
.Electric utility generation accounts for 66% of sulfur dioxide emissions
in the United States.
.1998 was the hottest year on record and this decade has been the hottest
decade on record.
.Scientists generally believe that increases in carbon dioxide emissions
contribute to global warming.
.Electric utility generation accounts for 36% of carbon dioxide emissions
in the United States.
A recent Worldwatch publication stated:
. . . [There] is an exciting alternative economic model that
promises a better life everywhere without destroying the earth's
natural support systems. The new economy will be powered not by
fossil fuels, but by various sources of solar energy and hydrogen
. . . Instead of a throwaway economy, we will have a
reuse/recycle economy.
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Even large oil companies seem to recognize the need for cleaner burning fuels
and renewable energy sources and are actively exploring alternatives to fossil
fuels. According to Worldwatch Institute:
.Atlantic Richfield's chief executive officer sees his company's large
holdings of natural gas playing a key role in the transition from a
carbon-based energy economy to one based on hydrogen.
.Royal Dutch Shell has announced a commitment of $500 million to renewable
energy sources.
According to Environmental Data Services, British Petroleum has announced plans
to expand its subsidiary BP Solar ten-fold over the next decade to achieve
annual sales of solar photovoltaic cells of $1 billion.
We are convinced of the need to switch from the current fossil-fuel-based,
throwaway economy to an environmentally sustainable economy, and we believe
that our g*commerce model can help accelerate this change.
We believe that Americans are more concerned than ever about environmental
problems and are more knowledgeable than ever about green products and
processes. We also believe that Americans are increasingly sensitive to the
effect that their individual behavior can have on the environment and are
willing to change that behavior in order to protect the environment. We believe
that this behavioral trend is evidenced by the recent growth of recycling.
According to BioCycle Journal of Composting & Recycling, the percentage of
recycled waste grew from 8% in 1990 to 28% in 1997.
[BAR CHART REPRESENTING PERCENTAGE INCREASE
IN WASTE RECYCLED FROM 1990 TO 1997]
In addition, BioCycle Journal of Composting & Recycling reported in April 1998
that the number of community curbside recycling programs had increased from
1,042 in 1989 to 8,937 in 1997.
According to the 1998 Green Gauge Report, an annual environmental survey
conducted by Roper Starch Worldwide, 47% of Americans "cite difficulty in
finding pro-environmental versions of products they need and say not having
time to shop around to find them is a "major reason' or "something of a reason'
for not doing more environmentally." We believe that if offered a convenient,
cost-effective choice, many consumers will purchase a product that is green
over one that is not. Jacquelyn Ottman, the author of Green Marketing:
Opportunity for Innovation, has said "[p]eople are "greener' today than ever
before" and "[g]reen marketing is looking more mainstream all the time." The
1998 Green Gauge Report states:
As Americans' levels of environmental concern are high and
sizable numbers of Americans say they would feel more favorable
toward a business that takes environmental action, marketing
around environmental issues is an excellent way to reach
consumers and build a "power brand."
We aim to make Green Mountain a leading brand for green products.
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Deregulation Is Empowering Consumers To Change The Way Electricity Is Made
Deregulation of the $200 billion electric utility industry--the largest
industrial source of air pollution in the United States--is part of a global
trend away from government control and toward free markets. The electricity
industry includes three basic functions: the production or generation of
electricity, wholesale and retail marketing of electricity and transmission and
distribution of electricity to the end user. Historically, in the United States
regulated electric utilities have provided bundled electricity service,
including generation, marketing and distribution, within exclusive franchise
service territories. The underlying premise of the regulatory system guaranteed
the utilities freedom from competition and a "reasonable" rate of return on
their investment in exchange for a limitation on that investment return in the
form of government regulation of the prices the utilities were allowed to
charge their customers.
The wholesale power sector is largely subject to federal regulation, while
the retail operations of electric utilities are principally regulated at the
state level. Since the passage of federal legislation in 1992, the Federal
Energy Regulatory Commission has implemented measures to facilitate competition
in wholesale power marketing. On a state-by-state basis, states have begun to
introduce competition to the retail power marketing and generation sectors.
Because of the inherent inefficiencies that would be involved in the
duplication of the "poles and wires" and other facilities required for the
distribution of electricity, this function remains in the hands of state-
franchised monopolies, subject to traditional rate of return price regulation.
As a result of deregulation, the power generation and marketing sectors have
been separated from the distribution function. Thus, the electric utility
industry is changing from one characterized by a single provider of bundled
electricity service to one having a number of electricity generators and
marketers who are not subject to governmental price regulation, but are subject
to market price competition and risk.
Currently, the industry segment in which we compete is retail marketing and
our primary target customers are residential customers. Deregulation is
providing consumers with a choice of electricity supplier and of generation
source. Because all electricity delivered into the electric distribution system
serving an area is fungible, choice does not affect the actual electrons
delivered for the consumer's use. It does, however, influence the source of the
electricity delivered to the distribution system. Choice allows the growing
community of informed and environmentally conscious consumers a convenient way
to direct market forces toward positive environmental change.
Because deregulation is a political process, the timing and outcome of
deregulation in any particular state is unpredictable. The specific features of
the deregulation program implemented in a particular state affect whether and
to what extent free competition will develop in that market. To date, four
states--Pennsylvania, California, Massachusetts and Rhode Island--have opened
their retail electricity markets to competition with varying degrees of
success.
.Pennsylvania. Pennsylvania's deregulation program has been the most
successful, resulting in the most active electricity retail market in the
United States. Pennsylvania consumers considering selection of a power
marketer other than their traditional electric utility compare their
"shopping credit" to the rate offered by that marketer. The "shopping
credit" is an amount deducted from the bill that the consumer would
receive from the utility if the consumer selects another supplier. The
prices charged for electricity by the suppliers are not subject to
Pennsylvania price regulation. Unregulated suppliers, including
unregulated affiliates of the traditional utilities, have been able to
offer power to consumers at prices equal to or less than the Pennsylvania
shopping credit, thus providing an incentive for consumers to switch from
their traditional utility supplier. We have not used discounts or price
incentives in establishing our rates, which are based on wholesale market
prices and competitive retail margins. From time to time, we do offer
sign-up incentives, such as an initial month of free service. The cost of
these incentives has been included in customer acquisition costs and has
not had a significant effect on our results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations." While we do not view ourselves as a price competitor, we
believe that we benefit from price competition because it contributes to
an active market of consumers who have made a deliberate choice of
electricity supplier.
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Pennsylvania's retail electricity market opened for competition on January
1, 1999. As of March 31, 1999, approximately 7% of the households in the
Pennsylvania market had elected to switch from their incumbent electricity
provider. Of those households, we estimate slightly less than one-third
switched to a green electricity product. As of March 31, 1999, there were
seven significant residential electricity suppliers (excluding incumbent
electric utilities and their affiliates) competing in the residential
Pennsylvania market, and two of them offered green electricity products.
.California. California's deregulation program is currently in a
transitional phase that is substantially less favorable to free market
competition than the Pennsylvania program. Under the California program,
consumers considering selection of an unregulated supplier are allowed a
shopping credit equal to the average wholesale cost of power available
under a pool known as the California Power Exchange. Because the shopping
credit is equal only to the wholesale value of the electricity consumed,
independent suppliers cannot generally offer consumers a price savings
compared to the traditional utilities. A limited exception exists as a
result of credits available for the production of electricity from
renewable resources. The absence of legitimate price competition has
limited the development of a vibrant, deregulated market in California.
California's retail electricity market opened for competition on April 1,
1998. As of March 31, 1999, 1% of the households in California had chosen
to switch from their incumbent electricity provider. As of March 31, 1999,
there were five residential electricity suppliers (excluding incumbent
electric utilities and their affiliates) competing for new customers in
the California market, and all of them offered green electricity products.
As a result, all households that have switched are receiving green
electricity.
.Massachusetts. Although the Massachusetts retail electricity market
nominally opened for competition on March 1, 1998, to date the shopping
credit in Massachusetts has not achieved a level permitting competitive
retail suppliers to match the rates offered by incumbent electricity
providers. Accordingly, no significant competition for residential
customers has developed. Under the Massachusetts deregulation program, the
shopping credit increases over time.
.Rhode Island. Although Rhode Island's residential retail electricity
market was formally open for competition by July 1998, no significant
competition has developed in Rhode Island for the same reason competition
for residential customers has not developed in Massachusetts. Under the
Rhode Island deregulation program, the shopping credit increases over
time.
The primary reason for the success of the Pennsylvania deregulation program
as compared to the programs in California, Massachusetts and Rhode Island is
that Pennsylvania's program has stimulated customer interest by allowing
competitive retail suppliers to offer consumers savings. Although the political
nature of the deregulation process makes it impossible to provide any assurance
in this regard, we believe that the legislators and regulators in states
opening their electric utility markets for competition in the future will
consider the success of the Pennsylvania deregulation program when establishing
the specific features of the deregulation program to be implemented in their
respective states. As the only independent power marketer focusing on
residential customers and operating in both the Pennsylvania and California
markets, we believe that we have established a credibility that will allow us
to effectively advocate the Pennsylvania model in consultation with government
officials in states exploring electric utility deregulation. See "Risk
Factors--Risks Related to Establishment of our Business--Our Ability to Expand
our Existing Green Electricity Business into New Markets Depends on the Outcome
of the Deregulation Process in Each State."
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The following map indicates the status of electric utility deregulation
across the continental United States.
MAP OF THE CONTINENTAL UNITED STATES APPEARS HERE DEPICTING
LEGISLATIVE OR OTHER ACTION TAKEN IN EACH STATE TO DEREGULATE
THE ELECTRIC UTILITY MARKET, INDICATING STATES WHERE:
.RESTRUCTURING PLAN ADOPTED BY COMMISSION OR LEGISLATION
.COMPANIES ORDERED TO FILE RESTRUCTURING PLANS OR ENABLING LEGISLATION ENACTED
.COMMISSION OR LEGISLATIVE INVESTIGATION UNDERWAY LIKELY TO LEAD TO A
RESTRUCTURING PLAN
.AN INFORMATIONAL OR FACT-FINDING STUDY IS UNDERWAY
.NO SUBSTANTIVE ACTIVITY IS UNDERWAY
[SOURCE: REGULATORY RESEARCH ASSOCIATES, MAY 14, 1999]
Pennsylvania, California, Massachusetts and Rhode Island are currently the
only states that have implemented competition on a statewide basis. In addition
to these four states, Arizona, Arkansas, Connecticut, Delaware, Illinois,
Maine, Maryland, Michigan, Montana, Nevada, New Hampshire, New Jersey, New
Mexico, New York, Oklahoma, Virginia and, most recently, Texas have taken
formal action to deregulate. We expect that more than half of the states will
provide consumers a choice of electricity supplier and generation source by the
end of 2003.
The deregulation of electricity follows the precedent of deregulation of
long distance telephone services, with some important differences. While long
distance telephone service (like wholesale electric sales) is largely governed
by federal laws, electric utilities are principally regulated by the states.
Also, we will be able to differentiate our products by their generation source
whereas the long distance telephone market is marked by an absence of product
differentiation.
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The Internet And Online Commerce Are Growing
We believe that the Internet is emerging as one of the most significant
global communications media. It is enabling millions of people to share
information and conduct business electronically. A number of factors are
contributing to the dramatic growth of this new medium, including:
.Ease of use;
.Reduced costs;
.Faster access;
.Improved content; and
.Increased attention in other media.
Jupiter Communications estimates that the number of Internet users in the world
will grow from 112 million in 1998 to 244 million in 2002.
Online retailers are able to communicate effectively with customers by
providing:
.Visual product presentations;
.Up-to-date pricing and product information;
.Customer support and opportunities for customer feedback;
.Product offerings tailored to customer preferences; and
.Electronic billing and payment systems.
These features, together with the widespread availability of express delivery
services, make online retailing a viable alternative to traditional stores.
Online retailers also avoid the burden of managing and maintaining numerous
local facilities and enjoy lower transaction costs.
An increasingly broad base of products and services are being sold online,
including books, brokerage services, computers, music and travel services.
Jupiter Communications estimates that the value of goods and travel services
purchased on the Internet in the United States alone will grow from $7.1
billion in 1998 to $41.1 billion in 2002. We cannot assure you that our sales
will have a comparable growth rate. Our growth rate will be affected by a
number of factors, including:
. Our ability to position the Green Mountain brand name;
. Our ability to broaden our product offerings;
. The timing of deregulation in the states that have not yet opened their
residential electricity markets to competition;
. The competition for customers interested in purchasing green consumer
products; and
. The continued development of public concern about environmental issues.
See "Risk Factors." To date, approximately 4% of customer sign-ups for our
green electricity have come through our Web site. We have only very recently
begun to offer other green consumer products over the Internet.
As the number of online content, commerce and service providers has
expanded, strong brand recognition and strategic alliances have become critical
to success. Brand development is especially important for online retailers due
to the need to establish trust and loyalty with customers in the absence of
face-to-face interaction.
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The Green Mountain Advantage
We believe that a significant opportunity exists for a company to market
green consumer products over the Internet. Research performed for us by
Copernicus, The Marketing Investment Strategy Group, which has assisted us with
the development of our overall marketing strategy, indicates that our green
electricity customers in Pennsylvania are 31% more likely to have accessed the
Internet in the last three months than the general population. According to the
1998 Green Gauge Report, "the Internet is one source by which Americans are
gaining information about the environment" and "[i]ndeed, 71% of [households
with one or more personal computers] say they know "a lot' or "a fair' amount
about the environment." We believe that by creating an Internet destination
site that will appeal to people who care about the environment, we can make
Green Mountain a leading brand for green products.
We believe that we are uniquely qualified to capitalize on the opportunity
to market green products over the Internet as a result of:
.Our success in marketing green electricity to residential customers in the
deregulated utility markets of Pennsylvania and California; and
.The growing awareness of our Green Mountain brand name.
Based on number of customers served, we are currently the leading seller of
green electricity to residential customers in Pennsylvania and California --
the two states that have effectively opened their residential electricity
markets to competition. In June 1998, we began marketing electricity products
in Pennsylvania, which opened for competition on January 1, 1999. As of March
31, 1999, we were serving approximately 48,100 customers in Pennsylvania. The
Xenergy 1999 Retail Wheeling Multi-Client Study Phase 4 Final Report states:
The survey analysis identified Green Mountain as "the" green
marketer in Pennsylvania, with a total market share of 29
percent of all switchers, and with nearly all of the green
market share. Much of their success may be attributable to
their ability to effectively market, as their prices are often
higher than those of other green marketers in Pennsylvania.
They are the most recognized supplier in the market, whether
or not the customers are green purchasers.
California's retail electricity market opened for competition on April 1, 1998.
Our marketing strategy in California was to concentrate first on northern
California due to its higher concentration of environmentally sensitive
consumers. We have recently increased our efforts in southern California. As of
March 31, 1999, we were serving approximately 19,900 customers in California,
approximately 75% of which were in northern California.
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The following table illustrates the number of our customers as of the end of
each calendar quarter commencing on or after April 1, 1998.
[BAR CHART REPRESENTING INCREASE IN QUARTERLY CUSTOMER GROWTH FROM 2ND QTR 1998
TO 1ST QTR 1999 IN TERMS OF CUSTOMERS SERVED APPEARS HERE]
Quarter to quarter comparisons of the number of customers is not necessarily
meaningful and should not be relied on as an indication of future growth in the
number of customers. Growth in the number of our customers is expected to be
affected significantly by the timing of our entry into new deregulated markets.
We are likely to experience higher customer acquisition rates during the
initial market opening period.
Market research performed for us by Copernicus indicates that from its first
introduction to the Pennsylvania market in June 1998, awareness of the Green
Mountain brand grew to 55% of residential households by April 1999. Similar
market research performed for us by Copernicus indicates that in November 1998,
16% of residential households in northern California and 11% of residential
households in the entire state were aware of our Green Mountain brand. By April
1999, awareness of the brand had grown to 31% in northern California and 24%
statewide. See "--Marketing, Sales and Customer Service--Marketing."
Our Strategy
Position "Green Mountain" As The Most Trusted And Best Known Green Brand
We are the first and only company to offer green electricity products
primarily to residential customers in the deregulated electric utility markets
of both California and Pennsylvania and one of the first companies to offer
green electricity products over the Internet. We intend to take advantage of
this first mover momentum to offer a wide variety of green products over the
Internet and position Green Mountain as the most trusted and best known
environmental brand. We are engaged in aggressive marketing aimed at increasing
awareness both of the environmental impacts of people's everyday purchases and
of the Green Mountain brand through traditional media, principally in states in
which we offer our energy products. We will continue to expand our Internet
marketing effort as we identify new green products that can be marketed beyond
those states.
We seek to establish relationships with environmental groups in support of
our message that personal purchasing decisions can effect positive
environmental change.
Some of our green electricity products are identified as environmentally
preferred by:
.Natural Resources Defense Council
.Environmental Defense Fund
.Clean Air Council (of Pennsylvania)
In addition, the Union of Concerned Scientists has chosen one of our products
to serve its California office and the electric vehicle charging station in its
parking lot.
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We have an affinity marketing program with each of the following
organizations:
.Redwood Alliance, Arcata, California
.Bay Keeper, San Francisco, California
.Save Our Shores, Santa Cruz, California
.AIDS Fund, Philadelphia, Pennsylvania
Each of the following organizations has supported our work in community
outreach programs:
.Coalition of Clean Air, Los Angeles, California
.The Nature Company, Berkeley, California
The Episcopal Diocese of California under its Episcopal Power & Light
Program has recommended Green Mountain as the preferred electricity provider in
California. Several Episcopal churches have chosen our products to serve their
church facilities.
We stake our reputation on the environmental soundness of our products. We
participate in the nation's first voluntary certification program for
environmentally preferred electricity products--the Green-e Renewable
Electricity Branding Program. Two of our three green electricity products
offered to customers in Pennsylvania and both of our green electricity products
currently being offered to new customers in California are Green-e certified.
The Green-e program is intended to ensure that retail suppliers of Green-e
certified electricity actually buy the renewable energy promised to their
customers and to help consumers compare different electricity offerings. Under
the program, annual independent audits of the delivery of certified products
are conducted. Green-e is administered by the Center for Resource Solutions, a
non-profit organization based in San Francisco, with an independent board of
environmentalists, consumer advocates and renewable energy experts. In order
for an electricity product to be certified by Green-e, it currently must
satisfy the following criteria:
. At least 50% of the product must come from specified renewable sources;
. Emissions of sulfur dioxide, nitrogen oxide and carbon dioxide from the
non-renewable generation component of the product must not exceed average
emissions rates of fossil fuel power that is otherwise available in the
electricity distribution system and the total fossil fuel emissions of
the product must not exceed the average emissions rate of power that is
otherwise available in the electricity distribution system;
. None of the product may come from nuclear power, other than a proportion
that is no greater than the proportion of nuclear power that is otherwise
available in the electricity distribution system; and
. The product must be offered by a company committed to following the
Green-e Code of Conduct on ethical treatment of customers, including
using simple contracts and disclosure labels.
Offer Convenience And Selection
In order to make it convenient for consumers to find pro-environmental
versions of products they need, we are expanding the offerings on our Web site
to include a broad selection of green consumer products in addition to the
green electricity products and solar generation equipment that we currently
offer in Pennsylvania and California. We will offer products obtained through
contracts with suppliers under our Green Mountain brand name, but do not intend
to do any manufacturing. We intend to pursue relationships with others to make
their green products available on our Web site, and we expect to derive
revenues from any sales of these products made through our site.
Develop And Maintain Our Web Site As A State-of-the-Art, Interactive Online
Commerce Platform
We are upgrading our Web site and technology systems to create a state-of-
the-art, interactive commerce platform that will enhance our expanded product
offerings and take advantage of the unique characteristics of online retailing.
Among other technology objectives, we intend for our Web site to:
.Provide personalized service programs;
.Make the user interface as intuitive, engaging and expedient as possible;
and
.Provide efficient fulfillment of product orders.
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<PAGE>
We currently use traditional media both to sell our products and to
encourage people to visit our Web site. As the Green Mountain brand becomes
more recognizable, we expect that the majority of our sales transactions will
be made through our Web site.
Develop And Maintain An Online Community That Fosters And Supports
"g*commerce"
We are seeking to develop an online community of individuals who are
concerned about the environment and want to use their personal purchase
decisions to effect positive environmental change. We believe that these
individuals will purchase a green product if:
.It is convenient;
.It is equal or better in quality;
.It has no more than a relatively minimal incremental cost; and
.They perceive that their purchase of that product will have a positive
effect on the environment.
We refer to the concept of harnessing free market forces to effect positive
environmental change as "g*commerce." We believe that educating consumers about
their own ability to effect positive environmental change through prudent
purchases will result in both revenue opportunities for us and improvements to
the environment.
Further, we believe that creating a large community of consumers of green
products will permit us to utilize the collective buying power of these
individual consumers to obtain and, in turn, offer green products at lower
prices than might otherwise be available and that, as we are able to lower
prices in this manner, we will attract additional customers.
Our approach to community development also includes affinity programs
intended to retain existing customers, increase revenue opportunities and
attract new customers.
Marketing, Sales And Customer Service
Outside Service Providers
We use third-party service providers to perform a number of key functions in
the operation of our business that would otherwise be performed by our
employees. We refer to our use of third-party service providers to perform
these functions as "outsourcing" and refer to these service providers as our
"outsourcing partners." Our extensive use of outsourcing reduces our internal
human resource and office space requirements and enables our management to
focus on our overall marketing strategy and the identification of new product
opportunities. See "Risk Factors--Other Risks Related to our Business
Generally--Poor Performance by One or More of our Outside Service Providers
Could be Disruptive to our Business Operations."
Key functions that we outsource and the outside service providers currently
performing those functions for us are identified below.
Marketing
Mass Media. To date, our brand awareness efforts have been focused on
Pennsylvania and California and have utilized primarily television, print,
radio and billboard advertisements.
The Internet. We have engaged in extensive Internet banner advertising in
Pennsylvania and California. We intend increasingly to use the Internet in our
brand awareness efforts. We are pursuing marketing relationships with Internet
portals and other high-traffic Web sites in order to increase the level of
traffic to our Web site. These arrangements typically involve banner
advertising containing our message and an interactive link to our Web site, but
can also involve other products such as e-mail.
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<PAGE>
Direct Mail. We employ a highly targeted, database-driven direct mail
marketing strategy, in which direct mail is followed by outbound telemarketing.
We use two main categories of lists to target potential customers--membership
lists for environmental organizations and demographically-profiled lists
obtained from national databases. We outsource the list processing and analysis
function to Experian Database Marketing Solutions and the mailing function to
PGI Companies.
Affinity Programs. We use affinity marketing programs to market our products
through groups that share our interest in the environment. We have entered into
agreements with approximately 40 groups for the promotion of our electricity
products. Under these agreements, which have terms that range from three months
to more than a year, we pay the affinity partner a fee for each electricity
customer referred by the partner. These affinity partners promote our
electricity products through bill inserts, telemarketing, in-store activities
and other means. See "--Our Strategy--Position "Green Mountain" as the Most
Trusted and Best Known Green Brand."
Events and Promotions. We utilize special events and promotions such as:
.Sponsorship of festivals and concerts by our spokesperson, Kenny Loggins;
.Appearances by GreenMountain.com representatives at local environmental,
health and sporting events to distribute information about us and our
products;
.Sponsorship of a tour through California by the "Veggie Van," an
alternative fuel vehicle that provides information about renewable energy;
and
.Appearances of our hot air balloon.
Marketing Relationships. Our overall marketing strategy has been developed
with the assistance of Copernicus, The Marketing Investment Strategy Group,
with which we have an ongoing relationship. In March 1995, Green Mountain Power
Corporation entered into a consulting agreement with Copernicus, which was
amended in March 1997. The agreement, which was assigned to us by a subsidiary
of Green Mountain Power Corporation, continues in effect for a series of
consecutive one-month terms until terminated by either party upon 90 days'
prior written notice. Under the agreement, we are required to pay a monthly
retainer fee of $20,000. The agreement provides for the placement of separate
purchase orders that are governed by the agreement. Total payments under this
agreement for 1998 were $491,491 and for the three months ended March 31, 1999
were $170,254. Other clients of Copernicus include such well-known companies as
AT&T, Compaq Computer, Hewlett-Packard, Michelin, Miller Brewing, Mobil,
Nasdaq, Pepsi-Cola, Polaroid and Visa.
We have established a relationship with The Cullinan Group, an integrated
marketing communications agency, to assist us with our brand development. More
specifically, on January 1, 1998, we entered into a marketing services
agreement with The Cullinan Group to prepare and execute marketing
communications plans and projects and place advertising for our energy
business. The agreement will continue until terminated by either party upon 90
days' prior written notice. Under the agreement, we are required to pay a
minimum monthly retainer fee of $30,000, which is credited against charges
incurred by The Cullinan Group on our behalf. Under the agreement, prior to the
commencement of each calendar quarter, we and The Cullinan Group agree upon a
budget for monthly expenses during the quarter and we then make monthly advance
payments in the amount of anticipated expenses for the month as reflected in
the agreed budget, less the monthly retainer fee. Following each month, The
Cullinan Group invoices us for actual expenses in excess of the advance
payments. The Cullinan Group may not exceed budgeted amounts by more than 10%
without our prior written approval. Total payments under this agreement for
1998 were $16,228,000 and for the three months ended March 31, 1999 were
$6,511,613. Other clients of The Cullinan Group include Georgia Pacific and
Thinsulate Insulation/3M.
In addition, we have established a relationship with Strategic Interactive
Group, an interactive media consulting agency and specialized Web site
developer, to assist us with enhancements to our Web site and our use of the
Internet in our brand awareness efforts. Our agreement with Strategic
Interactive Group may be
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It's a small planet.(SM)
<PAGE>
terminated by either party by giving the other party at least 90 days' prior
written notice. In addition, if Strategic Interactive Group breaches its
obligations or engages in action or inaction that significantly endangers
timely completion of its obligations and the breach, action or inaction
continues for more than 30 days after notice by us, we may terminate the
agreement at any time thereafter. If Strategic Interactive Group is not in
default and we fail to make any payment when due and that failure continues for
more than 30 days after notice by Strategic Interactive Group, then Strategic
Interactive Group may terminate the agreement. The agreement contemplates that
we will prepare and submit specific, authorizing documentation for the
procurement of specific services under the agreement. This documentation when
agreed to by us and Strategic Interactive Group establishes the estimated
budget for the specific services to be provided. Under the agreement, we pay
for services based on actual hours worked, but not more than the agreed budget
estimate without our prior approval. We also reimburse Strategic Interactive
Group for expenses incurred by it in performance of its services to us. Total
payments under this agreement for 1998 were $1,191,257 and for the three months
ended March 31, 1999 were $435,070. Other clients of Strategic Interactive
Group include Dell Computer, Federal Express, Kraft Foods, L.L. Bean and
American Express.
Sales
Customers may purchase our products through the following three methods:
.Internet. Customers may purchase our products through our Web site.
.Telephone. Customers may purchase our products through inbound or outbound
telephone contact. We outsource call center functions to ICT Group. On
January 30, 1998, we entered into a contract with ICT Group to manage our
call center and resulting databases. This agreement continues until either
party terminates it by providing the other party with 30 business days'
prior written notice. Under this agreement, we pay fixed monthly fees of
approximately $8,700, as well as actual costs associated with service
representatives' time and communication costs incurred resulting from
inbound and outbound calls. We have also begun to outsource call center
functions to Transcom USA.
.Mail. Customers may purchase our products by mail. We outsource our mail
response processing to Midwest Graphics.
When a customer purchases our products through one of these three methods,
information about the customer is placed into our Information Network and an
electronic data package is sent to a transaction router system. The transaction
router automatically submits an order for the appropriate customer service
activity. Our Information Network is managed by Sterling Software, and the
transaction router is managed by en.able, L.L.C. See "--Information Technology"
and "Related Party Transactions--Other Transactions and Relationships."
Customer Service
Orders submitted through our Information Network initiate customer service
functions. These functions include primarily:
.Customer Fulfillment. This function fulfills customer requests for
additional information about us and our products. We outsource this
function to PGI Companies.
.Product Delivery. Product delivery is effected directly by our suppliers.
.Billing and Customer Care. We outsource billing and customer care
functions to en.able, L.L.C. We have entered into an agreement with
en.able which provides that it will provide billing and the related
customer care to our residential customers and will develop and implement
a system to facilitate our electronic interface with electric utility
distribution centers. Unless earlier terminated, the initial term of the
agreement ends on November 1, 2002, but the agreement may be renewed prior
to the end of the initial term and each renewal term for an additional
one-year period by mutual agreement of the parties.
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<PAGE>
Beginning January 1, 2000, during the initial term either party may
terminate the agreement upon 270 days' prior written notice to the other
party. Following the initial term, the parties may terminate the agreement
upon 180 days' notice. In addition, either party may terminate the
agreement if the other party breaches a material provision of the
agreement and that breach is not cured within 30 days after notice is
given to the breaching party by the non-breaching party. We have agreed to
pay en.able monthly service charges for call center and billing services,
additional resource charges and cost of living adjustments. The monthly
charges are variable and are based on the number of billable accounts
maintained each month; however, we have agreed to pay minimum monthly
service charges for call center service and billing services, which
minimum charges are currently $112,500 per month.
Our Green Electricity Products
Deregulation of the electric utility industry is providing environmentally
conscious consumers with a choice of electricity supplier and generation
source. We are currently offering green electricity products--electricity
produced from renewable and other environmentally preferable generation
sources--in Pennsylvania and California. To date, more than 99% of our revenues
have come from the sale of our green electricity products in Pennsylvania and
California.
We offer three green electricity products to residential electricity
customers in Pennsylvania. The following table indicates, for each of these
products, its generation composition and the average monthly additional cost or
savings of the product as compared to the price of non-green electricity
offered by incumbent electricity providers, weighted across all utility service
territories based on our actual sales.
<TABLE>
<CAPTION>
Average Monthly
Additional Cost
Product Generation Composition or Savings
------- ---------------------- ---------------
<S> <C> <C>
.1% from new renewable landfill gas, which means electricity generated from the conversion of methane gas + $1.18
collected from decomposing landfill waste
.99% from natural gas and/or large-scale hydroelectric facilities
.3% from new renewable landfill gas + $6.85
.47% from other renewable resources, including small-scale hydroelectric, landfill gas and/or wind facilities
.50% from natural gas and/or large-scale hydroelectric facilities
.5% from new renewable landfill gas + $10.37
.95% from other renewable resources, including small-scale hydroelectric, landfill gas and/or wind facilities
["ECOSMART" LOGO APPEARS HERE]
["ENVIROBLEND" LOGO APPEARS HERE]
["E" LOGO APPEARS HERE]
["NATURE'S CHOICE" LOGO APPEARS HERE]
["E" LOGO APPEARS HERE]
</TABLE>
The pricing of these products varies by utility service territory based on,
among other things, the wholesale supply prices available to us.
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It's a small planet.(SM)
<PAGE>
We currently offer two green electricity products to new residential
electricity customers in California. The following table indicates, for each of
these products, its generation composition and the expected average monthly
additional cost or savings of the product as compared to the price of non-green
electricity offered by incumbent electricity providers.
<TABLE>
<CAPTION>
Average Monthly
Additional Cost
Product Generation Composition or Savings
------- ---------------------- ---------------
<S> <C> <C>
.5% from new renewable wind, geothermal or landfill gas -$0.66
.95% from other renewable resources, including small-scale hydroelectric, geothermal facilities and biomass,
which means fuels that include wood waste, agricultural wastes, methane gas from landfills and crops grown
specifically for energy production
.25% from newly-built wind turbine generators +$12.19
.75% from other renewable resources, including small-scale hydroelectric, biomass and geothermal facilities
["RENEWABLE POWER" LOGO APPEARS HERE]
["E" LOGO APPEARS HERE]
["WIND FOR THE FUTURE" LOGO APPEARS HERE]
["E" LOGO APPEARS HERE]
</TABLE>
There may be a construction-related delay for up to 12 months from the time
a customer orders the Wind for the Future 2.0SM product until the commencement
of wind-powered generation. During this delay, the customer will receive
electricity from renewable generation sources. Wind for the Future 2.0SM
customers pay the rate for the Wind for the Future 2.0SM product during the
delay period and would receive a refund of the difference between that price
and the price of the product actually delivered if the wind turbine does not
commence operations within 12 months.
Our current California electricity products were only recently introduced.
The products we previously offered in California--Water Power, 75% Renewable
Power and Wind for the FutureSM--remain available only to customers who
purchased them prior to the introduction of our current products. These
products were priced higher than our current 100% Renewable Power 2.0SM
product, which resulted in an average monthly additional cost to the consumer
of $5.17 for Water Power, $6.36 for 75% Renewable Power and $11.13 for Wind for
the FutureSM.
We expect to offer green electricity products similar to those offered in
Pennsylvania and California in the deregulated utility markets of other states
that we determine can be entered on a cost-effective basis. We will make that
determination based primarily on the population size and density of a
particular state, the timing of deregulation in that state and the proximity of
that state to previously deregulated states in which we are then competing. See
"Risk Factors--Risks Related to Establishment of our Business--Our Ability to
Expand our Existing Green Electricity Business into New Markets Depends on the
Outcome of the Deregulation Process in Each State."
We currently offer our electricity products in both Pennsylvania and
California at a guaranteed price based on a specified term, generally one year,
and three years for our Wind for the Future 2.0SM product. When a
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<PAGE>
customer's [PRINT ADVERTISEMENT--"NO COAL. NO NUKES. NO KIDDING."
initial term of --APPEARS HERE]
service expires,
we offer products for continued service that are priced based upon market prices
available at that time. Our customers may switch to another electricity supplier
at any time, although there is a small termination fee for the Wind for the
Future 2.0SM product.
Our strategy has been to obtain supply contracts that obligate wholesale
suppliers to provide electricity meeting our specifications sufficient to meet
requirements of a specified number of customers for the full term of our
arrangement with those customers. These requirements contracts generally provide
that during the relevant term the suppliers will deliver into the electricity
distribution system a volume of electricity having the characteristics of the
product selected by the customer equal to the amount of electricity used by the
customer during the service term. These supply contracts also require our
suppliers to provide all associated services, including transmission, scheduling
and settlement services, as applicable. These contracts are not generally
dependent on any minimum number of customers being assigned to them and permit
us to service customersthroughout a state.
We originally entered into three agreements with major wholesale electricity
suppliers to serve the requirements of our Pennsylvania customers. Under these
agreements, each supplier agreed to provide an amount of electricity that
matches the requirements of each customer assigned to that supplier for a
period of twelve months. For two of the agreements, either we or the supplier
may discontinue the assignment of additional customers upon
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It's a small planet.(SM)
<PAGE>
three months' notice. After the assignment of additional customers has been
discontinued, these suppliers will be obligated to continue to provide
electricity to us in an amount that matches the requirements of each customer
that was previously assigned to that supplier for the remainder of that
customer's twelve-month period, whereupon the supply contract will terminate.
These supply contracts may also be terminated by either party if an event of
default occurs relating to the other party. The third agreement provided for
the assignment of customers from January 1, 1999 to March 31, 1999 and, under
that agreement, the supplier is obligated to provide an amount of electricity
that matches the requirements of each customer assigned to that supplier for a
period of twelve months. We are now assigning new customers in the areas served
by this supplier to one of the other existing suppliers referred to above.
We have entered into agreements with two wholesale electricity suppliers to
serve the requirements of our California customers. Under both of these
agreements, the wholesale price is based on a fixed price spread related to the
wholesale electricity price in California as determined by the California Power
Exchange. One of these agreements provides for a surcharge on the Wind for the
Future SM wind power product. Under one of these agreements, the supplier has
agreed to provide to us electricity in an amount that matches the requirements
for each customer assigned to it for a period of twelve months, and either
party may discontinue the assignment of additional customers upon three months'
notice. After the assignment of additional customers has been discontinued,
this supplier will be obligated to provide us an amount of electricity that
matches the requirements of each customer that was previously assigned to the
supplier for the remainder of that customer's twelve-month period, whereupon
the supply contract will terminate. Under the other agreement, the supplier
provides electricity for one- and three-year service periods, depending on the
product being served, and may be assigned additional customers through December
31, 1999. The term of this agreement terminates on the earlier of the
expiration of the term of the last customer assigned to the agreement or
December 31, 2002 with respect to some products and December 31, 2005 with
respect to others. Both of these agreements generally provide that either party
may terminate the agreement if an event of default occurs relating to the other
party.
Total payments under our electricity supply contracts for 1998 were $992,181
and for the three months ended March 31, 1999 were $2,728,125.
Our contracts with four suppliers provide for separate letters of credit or
equivalent financial assurances to satisfy credit requirements. The amounts of
the letters of credit range from 15 days to two months of receivables based on
our load forecast. In addition, we have delivered to one supplier irrevocable
letters of credit in connection with the supplier's purchase and installation
of three wind power turbines. We also delivered letters of credit to regulators
securing our performance as an energy service provider. Total supply and
regulatory letters of credit outstanding at December 31, 1998 were $2,765,230
and at March 31, 1999 were $2,477,251.
With the exception of minor costs associated with specialty content that
makes up less than 15% of our electricity requirements and limited reservation
and liquidation fees, to date we have avoided taking on electricity supply
costs that are not tied directly to customer sales volumes. As described above,
under our supply contracts the price we pay for electricity is either fixed or,
in California, based on the price established by the California Power Exchange
plus a specified amount. Because the price terms for our customers reflect our
wholesale price of the electricity plus a retail margin and the term of our
supply contract is coextensive with the term of the contract with our customer,
we generally are not at risk that the wholesale price of power will exceed the
price to be paid by our customers. In the future, as our electricity
requirements reach substantial levels, we may increase the volume of
electricity contracts that we buy directly from electricity generators and
wholesale marketers in order to reduce our overall costs of electricity supply
and allow us greater marketing flexibility. We believe that we will be able to
obtain sufficient electric power to meet our supply needs, both for our
existing operations in Pennsylvania and California and future operations in new
deregulated electricity markets that we are likely to enter, for the
foreseeable future, although we can provide no assurance in this regard. See
"Risk Factors--Other Risks Related to our Business Generally--Our Existing
Green Electricity Business Depends on our Ability to Obtain from Wholesale
Electricity Suppliers, on Acceptable Terms, Electricity Meeting our Customers'
Requirements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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<PAGE>
[PRINT ADVERTISEMENT--"SOLAR POWER" Other Products
--APPEARS HERE]
Solar Generation
Equipment
We market Green
Mountain SolarSM systems in
California and
Pennsylvania. These systems
typically allow individual
homeowners to generate from
20% to 50% of their
electric power from the
sun. We offer five
different Green Mountain
SolarSM systems using two
different technologies. The
price of a Green Mountain
SolarSM system is between
$6,000 and $13,000 in areas
in California qualifying
for the most favorable
state and federal subsidy
programs and between $9,000
and $21,000 in other areas
of California and in
Pennsylvania. Applied Power
Corporation designs and
installs systems offered in
California and Pennsylvania
using components
manufactured by Solarex
Corporation. We intend to
expand our marketing of
Green Mountain SolarSM
systems to other markets.
Recently Announced Product Offerings
Credit Cards. We have recently begun to offer, through our Web site, a First
USA credit card that is co-branded with the Green Mountain brand and Visa.
Under our five-year agreement with First USA, we will promote the credit card
to our customers and registered users. First USA is responsible for
applications, provision of credit, billing and collection and related services.
We will be paid a fee for each person who signs up for the credit card, plus a
royalty on credit card purchases. We presently intend to dedicate 25% of these
royalties to environmental activities, including the construction of solar
power generation facilities. We believe this product will foster a sense of
community among our customers and a sense of identification with
GreenMountain.com.
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<PAGE>
Ecotourism. We have recently begun to offer, through our Web Site,
ecological tours and vacations arranged by The Green Travel Network. The
product we offer -- ecotourism -- is a nature-based form of specialty travel
that promotes responsible travel aimed at conserving the destination's natural
areas and sustaining the well-being of the local people.
Electric Bicycles. We have recently begun to offer electric bicycles sold by
ESI Energy Services. Through our Web site, our customers can obtain information
about and order different models of electric bicycles.
Books. We have recently begun to offer books relating to environmental
topics by partnering with Amazon.com. Our customers through our Web site view
the books on our Web site and then link to Amazon.com's Web site to place their
order.
Additional Product Offerings Under Consideration
We do not intend to manufacture any products, but rather will sell products
produced for us by others under the Green Mountain brand. We also expect to
enter into additional relationships with third parties to make their green
products available through our Web site. See "Risk Factors--Risks Related to
Establishment of our Business--Our Ability to Grow our Customer Base and
Generate Sales Depends on Broadening our Product Offerings" and "--Other Risks
Related to our Business Generally--Products Sold by us May Subject us to
Litigation and the Related Costs."
Some of the additional product offerings we have under consideration are
described below.
Energy Efficient Home Products. We expect to offer on our Web site a home
energy audit feature which will enable visitors to our site to review the
energy efficiency of their home. In conjunction with that feature, we expect to
offer a variety of products principally related to the home which will assist
the user in reducing energy use and expenditures. These will initially consist
of relatively small items such as energy efficient lighting, but we expect to
expand our selection of offerings to include more substantial products such as
major appliances.
Natural Gas. We are developing a marketing and branding strategy for natural
gas, which is a cleaner fossil fuel that we believe complements our electricity
products. Although the natural gas we would offer would generally not be
different from natural gas offered by other suppliers, we believe customers who
have chosen our electricity products will also be inclined to purchase natural
gas from us. We are also exploring the feasibility of offering a "green gas"
product, which would be a blend of landfill-gas derived fuel (methane) and
standard natural gas.
Like the electric utility industry, the natural gas utility industry is
being deregulated. We expect to offer retail natural gas products in each state
that deregulates in a manner that we believe will allow us to compete
effectively. Competition has opened in parts of the California and Pennsylvania
residential natural gas markets. We are currently negotiating with natural gas
suppliers in these markets.
Alternative Fuel Vehicles. We are currently exploring the feasibility of
marketing alternative fuel vehicles. Alternative fuel vehicles are vehicles
that operate using natural gas, ethanol, electricity or propane. There has been
increased attention to development of alternative fuel vehicles by automakers,
which has been primarily due to legislative trends that favor lower emission
vehicles and growing demand from consumers
who care about the environment. We believe that these trends will provide the
opportunity to market these vehicles on an increasingly larger scale.
Fuel Cells. We are exploring the feasibility of marketing fuel cells--a near
zero-emission electricity generation technology. Fuel cells convert natural
gas, gasoline or hydrogen into electricity without any combustion and the
related harmful by-products of nitrogen or sulfur dioxide. Fuel cells would be
a strong strategic addition to our green electricity products. Delivery of 100%
of the electricity needs of an average-sized residence would require placement
of a fuel cell unit the approximate size of a dishwasher. Potential residential
customers include customers who are interested in the environmental benefits of
fuel cell
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<PAGE>
technology, as well as rural homes and households that desire back-up or
uninterrupted electricity generation. Our ability to offer fuel cells, as well
as other products, is dependent on technological advances, and we cannot assure
you whether or when those advances will occur. See "Risk Factors--Risks Related
to Establishment of our Business--Our Ability to Grow our Customer Base and
Generate Sales Depends on Broadening our Product Offerings."
Financial Services. We are considering ways in which we can provide our
customers financial services related to environmentally responsible
investments, such as investments in companies which have a demonstrated record
of environmental accomplishment. The Social Investment Forum's November 1997
Report on Responsible Investing Trends in the United States reported the
existence of $1.2 trillion in professionally managed portfolios incorporating
at least one social investment strategy.
Our Web Site
Our goal is to create a Web site that will be a state-of-the-art,
interactive commerce platform. In addition to the tools necessary for the sale,
fulfillment and customer service functions, our Web site will offer content and
community features that will appeal to people who are concerned about the
environment. We are depending on Strategic Interactive Group, a specialized Web
site developer, for the upgrade of our Web site. We expect that the current
upgrade of our Web site will be complete by October 1, 1999. See "Risk
Factors--Risks Related to Establishment of our Business--To Attract Customers
and Make Sales Over the Internet, We Must Develop our Web Site and Implement
Ongoing Improvements to our Web Site in the Face of Rapid Technological
Change."
In an effort to decrease our dependence on Strategic Interactive Group, we
have been exploring with Edge Creative Design, Inc. and BreakThrough
Technologies, Inc., other Web site developers, arrangements under which they
would provide us with additional creative talent and professional services in
connection with the design and development of our Web site and would assist us
in assembling an employee team within GreenMountain.com capable of implementing
ongoing improvements to our Web site. We now believe that we have reached an
agreement in principle with Edge Creative, although the arrangement remains
subject to documentation. The arrangement would consist of a professional
services contract and a minority investment by us in Edge Creative. Under the
professional services contract, Edge Creative's President would serve as our
Creative Director and he and the other employees of Edge Creative would perform
services for us on an as-needed basis. We would pay for these services based on
agreed hourly or per diem rates and would be obligated to reimburse Edge
Creative for expenses incurred by it in connection with the delivery of these
services. We also would pay Edge Creative a one-time fee of $12,500 and $800
per month for overhead expenses and would reimburse Edge Creative for the cost
of leasing two automobiles valued at not more than $30,000 each. The
professional services contract would be for a term of three years, although
either party could terminate it upon 90 days' prior written notice.
Our proposed arrangement with Edge Creative also contemplates that we would
acquire from the President of Edge Creative 20% of the equity of Edge Creative
for $1.2 million, payable $96,000 in cash and $1,104,000 in shares of our
common stock, valued at the initial public offering price. The shares paid to
the President of Edge Creative would be subject to contractual restrictions on
transfer during the term of the professional services contract, as well as
legal restrictions. See "Shares Eligible for Future Sale." The contractual
restrictions on transfer would lapse with respect to an equal number of shares
at the end of each calendar quarter beginning on December 31, 1999 and ending
on June 30, 2002. If the professional services contract were terminated prior
to the end of its three-year term, a portion of the shares would be required to
be returned to us based on the amount of time remaining on the three-year term.
Similarly, we would be required to return to the President of Edge Creative a
portion of the Edge Creative shares held by us. If the professional services
contract is terminated by mutual agreement of the parties, we may require the
president of Edge Creative to repurchase the remaining Edge Creative shares
held by us at a price equal to 25% of the amount he has realized on the sale of
GreenMountain.com common stock prior to the date of the repurchase. If, on the
other hand, Edge Creative breaches the professional services contract, we may
require the President of Edge Creative
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It's a small planet.(SM)
<PAGE>
to repurchase the remaining shares of Edge Creative held by us at a price equal
to 50% of the amount he has realized on the sale of our shares prior to the
date of the repurchase. We would agree to waive the transfer restrictions on
the shares of our common stock held by Edge Creative in part if the President
of Edge Creative were to become an employee of GreenMountain.com or if Dennis
Crumpler were to cease to be associated with GreenMountain.com. We expect to
grant piggyback registration rights to the President of Edge Creative with
respect to the shares of common stock he will receive in this arrangement.
Because this arrangement remains subject to documentation, we cannot assure you
that we will ultimately enter into definitive agreements on these terms or at
all.
We believe that we also have reached an agreement in principle with
BreakThrough, although the arrangement remains subject to documentation. The
arrangement would consist of a professional services contract under which
employees of BreakThrough would perform services for us on an as-needed basis.
We would pay BreakThrough a $40,000 monthly retainer during the initial six
months of the arrangement, which would be applied against the time BreakThrough
incurs at agreed upon hourly rates. If we do not utilize $40,000 of services in
any given month, we will forfeit any unused portion of the retainer. We also
would reimburse BreakThrough for expenses incurred by it in connection with the
delivery of these services. We would also pay BreakThrough $150,000, payable in
shares of our stock at the initial public offering price, on the first
anniversary date of our agreement with BreakThrough if it meets certain
performance criteria to be agreed upon by the parties. BreakThrough employees
will report to the President of Edge Creative in his capacity as our Creative
Director. The professional services contract would be for a term of one year.
Either party could terminate the agreement upon 90 days' prior written notice.
Because this arrangement remains subject to documentation, we cannot assure you
that we will ultimately enter into a definitive agreement on these terms or at
all.
Strategic Web Site Relationships
We believe that in order to attract significant traffic to our Web site we
need to establish and maintain relationships with Internet portals and other
high-traffic Web sites that will carry links to our new Web site. For example,
on March 25, 1999, we entered into an Advertising and Promotion Agreement with
Yahoo! becoming Yahoo!'s Premier Merchant for consumer energy. The agreement
provides for the placement of banner advertising and button links promoting our
energy business on Yahoo! properties and delivery of Yahoo! e-mail messages
about our energy business for a one-year period. This one-year period began May
1, 1999. For these services, GreenMountain.com agreed to pay Yahoo! a fixed fee
of $6.0 million and a fee for each new energy service account opened through
promotion provided by Yahoo!, with a cap of $400,000 on the total amount to be
paid for accounts opened. Under the agreement, Yahoo! will market promotions to
its registered users on a geographically-targeted basis. The banner advertising
and button links will be displayed to, and the e-mail will be delivered to,
residents of the states of California, Pennsylvania and New Jersey.
GreenMountain.com has the right to redirect promotions that would otherwise be
directed to New Jersey if New Jersey's deregulation program is delayed more
than one month. See "--Marketing, Sales and Customer Service--Marketing." To
date, other than the Yahoo! agreement, we have not entered into any agreements
with any Internet portals or other high-traffic Web sites.
We will also need to establish relationships with content providers that
will provide our Web site with content that appeals to environmentally-
conscious consumers. To date, we have entered into content agreements with:
.Autobytel.com to provide information on fuel efficient vehicles;
.American Council for an Energy Efficient Economy to provide information on
vehicle fuel efficiency and emissions ratings for conventional vehicles;
and
.SocialFunds.com to provide investment research and analysis regarding
socially-responsible investments.
See "Risk Factors--Risks Related to Establishment of our Business--Our Failure
to Develop and Maintain Strategic Web Site Relationships Could Adversely Affect
our Ability to Attract Customers to our Web Site."
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<PAGE>
Community
Community will be an integral feature throughout our Web site. We believe
that through community activities such as e-mail newsletters, bulletin boards,
chat forums and eco-greeting cards, customers will have a unique opportunity to
share ideas about environmental issues and marketing solutions. We are
exploring community fostering elements for our Web site, including:
.A "socially responsible" business opportunities bulletin board;
.Live chats with environmental experts;
.Bulletin boards discussing environmental issues;
.User home pages--that will allow users to create their own home page on
our Web site;
.An eco-event locator--that will allow individuals to post and obtain
information about local, environment-related events;
.Teacher's tools--that will help teachers educate children about the
environment; and
.Environment-related charitable and volunteer opportunities.
Content
We intend for our Web site to offer a broad range of engaging and
educational environment-related content. The role of content at our Web site
will be to:
.Inform visitors about how to use g*commerce to improve the environment;
.Communicate the tangible difference that purchasing through
GreenMountain.com can have on the environment;
.Influence customer purchase behavior;
.Educate visitors about relevant environmental issues; and
.Report our environmental performance to the GreenMountain.com community.
We have entered into relationships with several content providers as described
above and are exploring relationships with other content providers. See "--
Strategic Web Site Relationships." We expect our content partners to include:
.Our suppliers and other vendors that sell products through our Web site,
who will provide direct product-related content;
.Leading environmental organizations; and
.Other environmental news providers.
Our Web site currently offers the content described above. See "--Strategic Web
Site Relationships." Examples of additional content that we are considering
include:
.Additional news articles and reports about the environment and issues that
impact the environment;
.Additional product research information;
.""Eco-tools" such as a home energy audit, a pollution locator, an eco-
investment tracker and an eco-travel planner;
.Expert roundtables addressing environment-related topics;
.Corporate environmental value added reports;
.Quizzes such as an eco-IQ quiz; and
.Games and other interactive activities for children.
We will maintain editorial oversight of all material contained on our Web site.
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<PAGE>
Online Purchasing
Our Web site will provide full online purchasing capability for many prod-
ucts that we offer. Following placement of an order, the customer will receive
an e-mail confirmation. The e-mail confirmation will summarize the purchase,
the total amount of sale and any shipping information and will include the an-
ticipated delivery or activation date.
Following order placement by a customer, order information will enter our
Information Network and will be routed to the appropriate supplier. Product
delivery or activation will be effected directly by our suppliers.
The following forms of online customer service will be available:
.Visitors will be able to search for answers to their questions on our Web
site. Answers to frequently asked customer inquiries may be searched by
topic, product and category. Visitors will have access to their complete
account information and will be able to update their personal information.
.Customers will be able to complete a form at our Web site or e-mail
questions or concerns directly to our customer support staff. An inquiry
will be acknowledged immediately, and we anticipate that a personalized
response will be delivered within 24 hours.
.We will provide 24 hour a day live customer service support through a
toll-free telephone number. Our customer service representatives will have
complete access to and familiarity with our Web site and applications.
Visitors may modify their online preferences or profile through this
channel if necessary.
Features
Our Web site will encourage visitors to register upon entering to receive a
more personalized site experience. The registration process will consist of a
short questionnaire that will gather information about the visitor's
environmental concerns, product and service interests and standard contact
information. Visitors will not be required to register in order to purchase
products or experience our complete Web site.
After registering, a visitor will be invited to establish a personalized "My
GreenMountain.com" containing product information and content of particular
interest to the visitor. Using "My GreenMountain.com," visitors will be able to
check order status and account balance, make payments, see how their purchases
have contributed to helping the environment and communicate with customer
service to answer questions or resolve problems.
Information Technology
Our Information Network electronically routes customer information in a
manner that allows each of our outsourcing partners to efficiently and
effectively perform the specific marketing, sales or customer service function
for which it is responsible. The Information Network also:
.Collects customer usage information;
.Communicates billing data;
.Provides customers with electronic payment options; and
.Interfaces with local utility distribution companies to share customer
information.
The design of our Information Network gives us the ability to:
.Service a rapidly growing customer base;
.Minimize our capital expenditures and reduce fixed costs by outsourcing
functions that are priced based on variable, per customer or transaction
charges; and
.Maximize the expertise and competitive advantages of our outsourcing
partners.
The use of standard data sets that can adapt to the needs of each outsourcing
partner provides flexibility and allows for significant changes, such as the
replacement of an outsourcing partner, on relatively short notice.
We are in the process of implementing an enterprise database as part of our
Information Network. This will provide us with the ability to access and
manipulate data that has entered the Information Network on a real time basis
giving us even greater flexibility and control.
We manage our Information Network with the assistance of Sterling Software,
a supplier of software products and services with expertise in network
management and automation. Products from Sterling Software
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<PAGE>
are used in more than 90% of the Fortune 100 companies including Ford Motor
Company, Wal-Mart Stores Inc. and Lockheed Martin, and are used in more than
20,000 customer sites worldwide. For a discussion of our agreement with
Sterling Software, see "Related Party Transactions--Other Transactions and
Relationships--Agreements with Sterling Software."
Our Competitive Position
Because both the deregulated electricity and online commerce markets are
new, rapidly evolving and highly competitive, we face intense competition and
anticipate that the competition will intensify in the future. Our competitors
and potential competitors include:
.Companies that offer competitive non-green products, like some of our
competitors in the deregulated electric utility markets, including Exelon
and Allegheny Energy in Pennsylvania, both of which are affiliates of
incumbent electric utilities;
.Companies that market green products in a single line of business, like
some of our competitors in the deregulated electric utility markets,
including Commonwealth Energy in California, that offer only green
electricity products;
.Retailers that do not specialize in offering green products, but do
include one or more green products among their offerings, like some of our
competitors in the deregulated electric utility markets, including
Conectiv in Pennsylvania; and
.Emerging online retailers that specialize in offering electricity
products.
We also anticipate competition from other retailers attempting to aggregate a
broad selection of green products.
We currently offer green electricity products in the deregulated utility
markets of Pennsylvania and California. To date, more than 99% of our revenues
have come from sales of our electricity products in those two states. In
Pennsylvania, as of March 31, 1999, approximately 7% of the households in the
Pennsylvania market had switched from their incumbent electricity provider. Of
those that switched from their incumbent electricity provider, approximately
30% switched to green electricity, and of those that switched to green
electricity, approximately 97% switched to us. In California, as of March 31,
1999, only 1% of the households in California had chosen to switch from their
incumbent electricity provider, and of those that had switched, approximately
25% switched to us. In California, all of those that switched are receiving
green electricity.
We believe that the most significant barrier to entry for a company seeking
to create a national consumer brand in order to compete in deregulated
electricity markets is the significant capital investment necessary for brand
development and technology infrastructure. We believe that the principal
competitive factors in the retail green electricity market are:
.First mover momentum;
.Strong brand recognition and presence;
.Marketing ability;
.Environmental credibility; and
.Competitive pricing.
We are focusing on increasing our Internet presence and expanding our
Internet sales of green electricity and other green products. The online
commerce market has relatively minimal barriers to entry in that current and
new competitors can launch new sites at a relatively low cost. We believe that
the principal competitive factors in the online commerce market include:
.First mover momentum;
.Strong brand recognition and presence;
.Broad product selection;
.Quality of site experience;
.Purchasing convenience;
.Competitive pricing; and
.Reliability and speed of fulfillment.
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<PAGE>
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we do. We may face
increased competitive pressures as new technologies are developed and existing
technologies are improved. See "Risk Factors--Other Risks Related to our
Business Generally--Intense Competition May Affect our Ability to Grow our
Customer Base and Generate Sales."
The Protection Of Our Intellectual Property
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets and similar intellectual property as critical to our success, and rely
on trademark and copyright law, trade secret protection and confidentiality
and/or license agreements with our employees, strategic partners and others to
protect our intellectual property rights. See "Risk Factors--Other Risks
Related to our Business Generally--Failure to Protect our Intellectual Property
Could Adversely Affect our Brand and our Business."
The Impact Of Government Regulation On Our Business
In addition to regulations applicable to businesses generally, including
federal and state consumer protection laws and regulations, we are subject to
the laws and regulations applicable to electric power retailers in the
deregulated electric utility markets in which we compete. See "Risk Factors--
Risks Related to Establishment of our Business--Our Ability to Expand our
Existing Electricity Business into New Markets Depends on the Outcome of the
Deregulation Process in Each State." We are also subject to laws and
regulations applicable to online commerce. See "Risk Factors--Risks Related to
the Internet and Online Commerce Aspects of our Business--Government Regulation
of the Internet and Online Commerce is Still Developing and Could Increase our
Operating Costs or Otherwise Adversely Affect our Business."
Our Employees
As of March 31, 1999, we employed 68 full-time employees and seven temporary
employees. None of our employees is represented by a labor union, and we
consider our relations with employees to be good.
The Facilities Used In Our Business
Our headquarters are located in South Burlington, Vermont. We lease
approximately 16,000 square feet of space, which houses our administrative,
sales and marketing and operations and support staffs under a cancelable
operating lease that expires on September 30, 2002. Future minimum lease
payments required at December 31, 1998, assuming that we do not cancel the
lease, were $114,675 in each of 1999, 2000 and 2001 and $86,006 in 2002. The
lease agreement has a termination provision that enables us to terminate the
lease at (1) September 30, 1999 and pay an early termination payment of
$33,000, (2) September 30, 2000 and pay an
early termination payment of $25,000, and (3) September 30, 2001 and pay an
early termination payment of $12,500. We also lease approximately 4,800 square
feet, which will house additional company personnel, under a one-year lease
agreement, the term of which commenced on June 15, 1999. This lease agreement
provides for two successive renewal terms of one year each. Under this
agreement, our monthly lease payments are $4,109 through June 14, 2000. If we
renew the lease for the renewal terms, our monthly lease payments would be
$4,212 for the period from June 15, 2000 to June 14, 2001 and $4,317 for the
period from June 15, 2001 to June 14, 2002.
Legal Proceedings
On June 18, 1999, we received a letter on behalf of Andersen Weinroth
Capital Corporation and Andersen, Weinroth & Co., L.P. claiming that (1) a
warrant held by Andersen Weinroth Capital Corporation entitled it to purchase
342,000 shares of common stock at $2.50 per share, rather than 11,343 shares of
common stock at a price of $75.59 per share as determined by GreenMountain.com,
and (2) Andersen, Weinroth & Co., L.P. was entitled to a payment of $330,000
upon consummation of our initial public offering. On June 23, 1999, a complaint
was filed in the Supreme Court of the State of New York, County of New York
(Index No. 603019/99), based on these assertions. We believe that the
assertions are without merit and intend to defend vigorously these legal
proceedings. We are presently unable to estimate with reasonable certainty the
likelihood of success of the claims or the amount of the loss, if any, that we
may incur as a result of the claims.
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<PAGE>
ENVIRONMENTAL ADVISORY BOARD
To obtain expert advice on critical environmental issues and to facilitate
communication between GreenMountain.com and environmental community leaders, we
have assembled an Environmental Advisory Board which includes the following
individuals:
<TABLE>
<CAPTION>
Principal Affiliation and
Name Position Held
---- -------------------------
<S> <C>
Ralph Cavanagh............................... Natural Resource Defense
Council Co-Director, Energy
Program
Christopher Flavin........................... Worldwatch Institute
Senior Vice President
Lewis Milford................................ Clean Energy Group
President
V. John White................................ Center for Energy Efficiency
and Renewable Technologies
Executive Director
</TABLE>
Each member of the Environmental Advisory Board serves in his individual
capacity and not as a representative of the organization with which he is
affiliated. We currently have no standard arrangement under which we compensate
members of our Environmental Advisory Board, except that we reimburse them for
their out-of-pocket expenses incurred in connection with their service on the
Environmental Advisory Board. Members of the Environmental Advisory Board will
be eligible to receive stock option grants under our 1999 Stock Option Plan.
See "Management--Stock Option Agreements and Plans--1999 Stock Option Plan."
We are actively recruiting additional environmental experts and leaders to
serve on the Environmental Advisory Board. In addition, we intend to broaden
the scope of the Environmental Advisory Board to include, or create one or more
new advisory boards that will include, members who will provide expert advice
on technical and business matters. Accordingly, we are recruiting technical and
business advisors for that purpose. To date, as a result of our recruiting
efforts we have obtained a commitment from one additional environmental expert
to serve on the Environmental Advisory Board and commitments from three
individuals to serve us as technical and business advisors.
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It's a small planet.(SM)
<PAGE>
MANAGEMENT
Our Executive Officers And Directors
The following table sets forth information regarding our executive officers
and directors as of the date of this prospectus.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Sam Wyly................ 64 Chairman and Director
Dennis M. Crumpler...... 46 Vice Chairman and Director
Evan A. Wyly............ 37 Vice Chairman and Director
Mark Cuban.............. 40 Director*
Dianne Dillon-Ridgley... 49 Director*
Richard E. Hanlon....... 51 Director*
Reed E. Maltzman........ 32 Director*
Lisa Wyly............... 33 Director
H. Lee S. Hobson........ 34 Director
M. David White.......... 37 Chief Executive Officer
Dennis W. Kelly......... 46 President and Chief Operating Officer
Kevin W. Hartley........ 39 Executive Vice President and Chief Marketing Officer
Julie D. Blunden........ 33 Vice President, Strategic Planning
Thomas C. Boucher....... 44 Vice President, Energy Supply and Business Development
Karen K. O'Neill........ 46 Vice President, New Markets
Peter H. Zamore......... 47 Vice President, General Counsel and Secretary
Jay LeDuc............... 43 Director of Operations and Systems
Thomas H. Rawls......... 53 Chief Environmental Officer
K. Scott Canon.......... 37 Chief Financial Officer
Jeffrey D. Liotta....... 46 Chief Technology Officer
</TABLE>
- --------
* Expected to be appointed to the board of directors prior to the closing of
this offering.
Sam Wyly has been our Chairman and a director of GreenMountain.com since
March 1999 and a member of the management committee of our predecessor since
August 1997. Mr. Wyly is a computer software entrepreneur who has created and
managed several public and private companies. In the 1960's, he founded
University Computing Company, which became one of the first computer utility
networks and one of the first software products companies. His data
transmission company, Datran, was one of the pioneering telecommunications
ventures that contributed to the breakup of the telephone monopoly. He is a
founder and currently serves as Chairman and a director of Sterling Software, a
worldwide supplier of software products. He is also Chairman of the Executive
Committee and a director of Sterling Commerce, a provider of business-to-
business electronic commerce software to 80 of America's 100 largest
corporations, Chairman and a director of Michaels Stores, a large arts and
crafts retail chain, and Chairman and a director of Scottish Annuity & Life
Holdings, a variable life insurance and reinsurance company. He is a founding
partner of Maverick Capital, a manager of equity hedge funds. Mr. Wyly is the
father of Evan Wyly and Lisa Wyly who also serve as directors. Mr. Wyly
received his B.A. from Louisiana Tech University in 1956 and his M.B.A. from
the University of Michigan Business School in 1957.
Dennis M. Crumpler has been a Vice Chairman and a director of
GreenMountain.com since March 1999 and a member of the management committee of
our predecessor since February 1999. From September 1997 to the present, Mr.
Crumpler has served as an investment manager for Cimco, LLC, a private
investment firm that is managing general partner of Crumpler Family LP. From
July 1998 to October 1998, he served as Senior Vice President, Strategic
Initiatives of Sterling Commerce. From September 1986 to July 1998, Mr.
Crumpler was Chief Executive Officer of XcelleNet, a company specializing in
systems management solutions for remote and mobile users. XcelleNet was founded
by Mr. Crumpler and was acquired by Sterling Commerce in July 1998. Mr.
Crumpler received his B.S. from the Massachusetts Institute of Technology in
1975 and his M.B.A. from Harvard Business School in 1982.
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<PAGE>
Evan A. Wyly has been a Vice Chairman and a director of GreenMountain.com
since March 1999 and a member of the management committee of our predecessor
since August 1997. Mr. Wyly is a founder, and since 1990 has been a Managing
Partner, of Maverick Capital, a manager of equity hedge funds with $3 billion
in assets. Mr. Wyly is also a director of Sterling Commerce, Sterling Software
and Michaels Stores. Mr. Wyly received his B.A. from Princeton University in
1984 and his M.B.A. from Harvard Business School in 1988.
Mark Cuban has been a member of the management committee of our predecessor
since February 1999 and is expected to be appointed as a director of
GreenMountain.com prior to the closing of this offering. From May 1995 to the
present Mr. Cuban has served as President and Chairman of the Board of
broadcast.com, a provider of live and on-demand audio and video programs over
the Internet, which he co-founded in 1995. From 1991 to May 1995, Mr. Cuban was
President of Radical Computing, a Dallas-based venture capital and investment
company specializing in technology companies. Mr. Cuban received his B.S. from
Indiana University in 1981.
Dianne Dillon-Ridgley is expected to be appointed as a director of
GreenMountain.com prior to the closing of this offering. Ms. Dillon-Ridgley is
currently the Acting Executive Director of the Women's Environment and
Development Organization, an international women's advocacy network for
environmental and economic issues. She has served this organization in various
capacities since 1991, including Senior Policy Analyst from 1994 to 1998. She
also serves as a trustee of the Wallace Global Fund, a foundation committed to
advancing sustainable development. From 1994 through 1997, she served as
president of Zero Population Growth, the nation's largest grassroots
organization concerned with rapid population growth and the environment. She
has served on President Clinton's Council on Sustainable Development since 1994
and serves as co-chair of the Council's International Task Force. Since 1997,
she has served as a Director of Interface, Inc., a global manufacturer,
marketer, installer and servicer of products for the commercial and
institutional interiors markets. Ms. Dillon-Ridgley received her B.A. from
Howard University in 1973.
Richard E. Hanlon has been a member of the management committee of our
predecessor since February 1999 and is expected to be appointed as a director
of GreenMountain.com prior to the closing of this offering. Mr. Hanlon has been
Vice President, Investor Relations of America Online, a global provider of
Internet online services, since February 1995. From March 1993 to February
1995, Mr. Hanlon was President of Hanlon & Co., a consulting firm. Mr. Hanlon
is also a director of Michaels Stores. Mr. Hanlon received his B.A. from the
University of London in 1969.
Reed E. Maltzman has been a member of the management committee of our
predecessor since February 1999 and is expected to be appointed as a director
of GreenMountain.com prior to the closing of this offering. From July 1998 to
the present, Mr. Maltzman has served as Director of Strategy at eBay, an
Internet auction company. From June 1997 to July 1998, he was an Associate
Research Analyst covering Internet stocks for BT Alex Brown, an investment
banking firm. From August 1995 to June 1997, Mr. Maltzman served as the Manager
of New Media Business Development of CKS Interactive, an interactive
advertising agency. Mr. Maltzman received his B.A. from Harvard University in
1989 and his M.B.A. from Stanford Graduate School of Business in 1995.
Lisa Wyly has served as a director of GreenMountain.com since March 1999 and
a member of the management committee of our predecessor since August 1997. Ms.
Wyly is a Managing Director of Highland Stargate, Ltd., a private company that
oversees 100 family trusts and partnerships. From 1992 to 1997, Ms. Wyly was
Program Director of the Family Sign Language Program for the Massachusetts
State Association of the Deaf, Inc. From 1990 to 1992, Ms. Wyly was a teacher
at R.E.A.D.S., a program for deaf and hard of hearing children. Ms. Wyly
received her B.A. from Principia College in 1989 and her M.Ed. from Boston
University in 1993.
H. Lee S. Hobson has been a director of GreenMountain.com since March 1999
and a member of the management committee of our predecessor since January 1999.
Since 1994, Mr. Hobson has been a Senior Analyst, then Partner, of Maverick
Capital. Mr. Hobson focuses on investments in global consumer products
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<PAGE>
companies and in Latin America. Before joining Maverick in 1994, Mr. Hobson
served as an associate in the new business development division of PepsiCo
Foods International, a division of PepsiCo., a marketer of branded beverages
and snack foods. Mr. Hobson received his B.A. from Princeton University in 1987
and his M.B.A. from Harvard Business School in 1992.
M. David White has been our Chief Executive Officer since October 1998. From
February 1998 to October 1998, Mr. White served as Senior Vice President,
Investment Banking Division, Donaldson, Lufkin & Jenrette, an investment
banking firm. Mr. White was Vice President of Finance of Boston Chicken, a
restaurant chain, from December 1994 to June 1997. From August 1986 to December
1994 and from June 1997 to January 1998, Mr. White was in the Investment
Banking Department of Merrill Lynch & Co., an investment banking firm, and
became a Director of the Investment Banking Department in January 1993. Mr.
White received his B.A. from the University of Texas at Austin in 1983.
Dennis W. Kelly has been our President since February 1999 and became our
Chief Operating Officer in May 1999. From December 1982 to February 1999, Mr.
Kelly served in both executive and managerial capacities with The Coca-Cola
Company, a beverage and consumer products company, including Vice President,
Director of Marketing for Europe, and Deputy Chief Marketing Officer from
February 1997 to February 1999, Vice President and Director, Global Strategic
Marketing Research from February 1995 to February 1997 and Vice President and
General Manager, Noncarbonated Beverages, USA from January 1993 to February
1995. Prior to December 1982, Mr. Kelly held positions with Procter & Gamble, a
consumer products company, and Touche Ross & Company, an accounting firm. Mr.
Kelly received his B.M.E. from the Georgia Institute of Technology in 1976 and
his M.B.A. from Harvard Business School in 1981.
Kevin W. Hartley has been our Chief Marketing Officer and Executive Vice
President since December 1998. Prior to that, he served as our Vice President
of Marketing beginning August 1997. From May 1994 to August 1997, Mr. Hartley
held several positions with Green Mountain Power Corporation, including Vice
President of Marketing from May 1997 to August 1997. Between 1990 and 1994, Mr.
Hartley was Director of Retail Fiberglass Marketing for the Manville
Corporation (now the Schuller Corporation), a manufacturer of building and
insulation products. Mr. Hartley received his B.S. from the University of
Vermont in 1981 and his M.B.A. from the University of Colorado in 1990.
Julie D. Blunden has been our Vice President of Strategic Planning since
October 1998. Prior to that, she served as our Regional Director of California
beginning August 1997. From January 1997 to August 1997, Ms. Blunden was
Director of Sales, then Regional Director, for the California region of Green
Mountain Power Corporation. From 1987 to August 1996, Ms. Blunden held several
positions with AES, a worldwide developer, owner and operator of power plants,
including Project Director from September 1995 to August 1996. From September
1993 to June 1995, Ms. Blunden also attended graduate business school, and
during part of 1994, she worked for the Center for Energy Efficiency and
Renewable Technologies. Ms. Blunden received her B.A. from Dartmouth College in
1988 and her M.B.A. from Stanford Graduate School of Business in 1995.
Thomas C. Boucher has been our Vice President of Energy Supply and Business
Development since August 1997. From 1992 to August 1997, Mr. Boucher held
several financial, business and energy planning positions at Green Mountain
Power Corporation, including Vice President of Business Strategy from May 1996
to August 1997. Mr. Boucher received his B.S.E.E. from the University of
Vermont in 1976.
Karen K. O'Neill has been our Vice President of New Markets since August
1997. From 1985 to August 1997, Ms. O'Neill held several positions with Green
Mountain Power Corporation, including Assistant Vice President, then Vice
President, of Organization Development and Human Resources from 1994 to August
1997 and Assistant General Counsel from 1989 to 1994. Prior to that, Ms.
O'Neill held management positions with the Justice Department and was an
Assistant United States Attorney for the District of Columbia. Ms. O'Neill
received her B.A. from the University of Pennsylvania in 1973 and her J.D. from
the National Law Center at George Washington University in 1977.
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Peter H. Zamore has been our Vice President, General Counsel and Secretary
since August 1997. From January 1995 to August 1997, Mr. Zamore was General
Counsel of Green Mountain Power Corporation. From 1984 to 1995, Mr. Zamore was
an associate and then partner of Sheehey Brue Gray and Furlong, P.C., a
Burlington, Vermont law firm. Mr. Zamore received his B.A. from Marlboro
College in 1974 and his J.D. from Vermont Law School in 1979.
Jay LeDuc has been our Director of Operations and Systems since January
1999. Prior to that, he held other positions with us, including Director of
Regional Development from November 1997 to January 1999. From October 1992 to
October 1997, Mr. LeDuc served in several marketing positions with The Systems
House, a marketer of information systems solutions to the office products
industry, in Chicago, Illinois. Mr. LeDuc has served as co-chair of the
Pennsylvania Data Exchange Working Group and as a member of the Pennsylvania
Pilot Implementation Committee. Mr. LeDuc received his B.S. from the University
of Vermont in 1978.
Thomas H. Rawls has been our Chief Environmental Officer since January 1999.
Prior to that, he served as our Director of Environmental Affairs beginning
August 1997. From March 1993 to August 1997, Mr. Rawls held several positions
with Green Mountain Power Corporation, including Manager of Marketing from June
1996 to July 1997. Since 1978, he has been chief editor of Country Journal, of
Harrowsmith, a magazine devoted primarily to topics about the environment and
rural life, and of Natural Health. He is the author of Small Places, In Search
of a Vanishing America (Little, Brown). Mr. Rawls is the former vice-chairman
of the Board of the Vermont Natural Resources Council, a statewide
environmental group, and is Chair of the Board of the Renewable Energy
Alliance, a national group of wholesale and retail power marketers. Mr. Rawls
received his B.A. from Princeton University in 1968.
K. Scott Canon has been our Chief Financial Officer since February 1999.
From March 1992 to February 1999, he has served in the following capacities
with the broker-dealer affiliate of Security Capital Group, a global real
estate research, investment and operating management company: member of the
board of directors from June 1996 to February 1999, Senior Vice President from
March 1997 to February 1999, President from January 1996 to March 1997 and Vice
President from May 1993 to January 1996. From October 1991 to March 1992, he
worked for Chase Manhattan Bank, and from August 1987 to October 1991 for
Goldman, Sachs, an investment banking firm. Mr. Canon received his B.A. in 1984
and his M.B.A. in 1987 from the University of Texas at Austin.
Jeffrey D. Liotta has been our Chief Technology Officer since May 1999. From
March 1997 to May 1999, Mr. Liotta served as Vice President Research and
Development of Eastman Software, a subsidiary of Eastman Kodak that develops
document management software. From January 1996 to February 1997, he was Vice
President Client Server Development of Dun & Bradstreet Software, a designer
and manufacturer of client/server enterprise resource planning systems. From
September 1995 to January 1996, he was Vice President Software Engineering of
Ascom Nexicon, a developer of high-end asynchronous transfer mode switches.
From October 1994 to September 1995, Mr. Liotta held several positions with
Banyan Systems, a developer of network and system management software products
including General Manager Network Management Business from January 1995 to
September 1995. Mr. Liotta received his B.A. from Duke University in 1975 and
his M.B.A. from the University of North Carolina at Chapel Hill in 1980.
None of the directors or director nominees is an employee of
GreenMountain.com.
Classified Board Of Directors
Our certificate of incorporation provides that our board of directors will
be divided into three classes of directors. Each class will serve a staggered
three-year term, except that the initial directors will serve as indicated in
the following paragraph. Approximately one-third of our board of directors will
be elected each year. Vacancies on the board will be filled only by persons
elected by a majority of the remaining directors, and a director elected by the
board to fill a vacancy will serve for the remainder of the full term of the
class of
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<PAGE>
directors in which the vacancy occurred and until such director's successor has
been elected and qualified. See "Description of Capital Stock--Provisions of
our Certificate of Incorporation, our Bylaws and Delaware Law."
Sam Wyly, Mark Cuban and Lee Hobson will serve as Class I directors, whose
terms expire at the 2000 annual meeting of stockholders. Dennis Crumpler, Reed
Maltzman and Evan Wyly will serve as Class II directors, whose terms expire at
the 2001 annual meeting of stockholders. Dianne Dillon-Ridgley, Richard Hanlon
and Lisa Wyly will serve as Class III directors, whose terms expire at the 2002
annual meeting of stockholders.
Board Committees
Prior to the closing of this offering, our board of directors expects to
establish six board committees--an Executive Committee, an Environmental
Integrity Committee, an Audit Committee, a Special Compensation Committee, a
Compensation Committee and a Nominating and Corporate Governance Committee.
Executive Committee
Between meetings of our full board of directors, the Executive Committee may
exercise all of the power and authority of the board in the oversight of the
management of our business and affairs, subject to limitations imposed under
Delaware law. The initial Executive Committee members will be Sam Wyly, Dennis
Crumpler and Evan Wyly, and Mr. Crumpler will serve as Chairman of the
Executive Committee.
Environmental Integrity Committee
The Environmental Integrity Committee will be responsible for reviewing our
effect on the environment and our adherence to our environmental principles and
making recommendations to the full board of directors as to how we can improve
our environmental performance. The initial members of the Environmental
Integrity Committee will be Sam Wyly, Dennis Crumpler, Reed Maltzman and Diane
Dillon-Ridgley. The members of the committee will determine which of them will
serve as the committee chairman.
Audit Committee
The Audit Committee will review our internal accounting procedures and
controls and consult with and review the services provided by our independent
accountants. The initial Audit Committee members will be Mark Cuban, Richard
Hanlon and Reed Maltzman. The members of the committee will determine which of
them will serve as the committee chairman.
Special Compensation Committee
The Special Compensation Committee will review and determine the salaries,
benefits, stock option grants and other compensation of the Chairman, any Vice
Chairman, any director serving on the Compensation Committee, the Chief
Executive Officer and all other executive officers. The initial Special
Compensation Committee members will be Mark Cuban, Richard Hanlon and Reed
Maltzman. The members of the committee will determine which of them will serve
as the committee chairman.
Compensation Committee
The Compensation Committee will review and recommend to the full board of
directors the salaries, benefits, stock option grants and other compensation of
all employees, consultants, directors and other individuals compensated by us
whose compensation is determined by action of the board of directors (other
than the Chairman, any Vice Chairman, any director serving on the Compensation
Committee, the Chief Executive Officer and all other executive officers). The
initial Compensation Committee members will be Sam Wyly, Dennis Crumpler and
Evan Wyly. The members of the committee will determine which of them will serve
as the committee chairman.
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Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee will be responsible for
considering and making recommendations to the full board of directors regarding
nominees for election to the board of directors and board committee
assignments. The Nominating and Corporate Governance Committee will also review
and report to the board of directors on a periodic basis with regard to matters
of corporate governance. The initial members of the Nominating and Corporate
Governance Committee will be Sam Wyly, Evan Wyly and Richard Hanlon. The
members of the committee will determine which of them will serve as the
committee chairman.
Director Compensation
Each director will be paid a semi-annual retainer in the form of shares of
unrestricted common stock having a fair market value of $15,000. The fair
market value per share for the six-month retainer period beginning January 1
and ending June 30 of each year will be equal to the closing price of the
common stock on the last trading day of the preceding calendar year, and the
shares for the retainer period will be issued to the directors as soon as
practicable after January 1 of each year. The fair market value per share for
the six-month retainer period beginning July 1 and ending December 31 will be
equal to the closing price of the common stock on the last trading day
preceding July 1, and the shares for the retainer period will be issued to the
directors as soon as practicable after July 1 of each year.
If a director is first elected to the board of directors after the first day
of a retainer period, he or she will receive, as soon as possible after the
election, a pro rata portion of the semi-annual retainer for that retainer
period based on the number of days remaining in the period, and the fair market
value per share will be equal to the closing price of the common stock on the
last trading day preceding the date of the director's election to the board of
directors.
The shares of common stock issued to each director in payment of the
director's retainer will not be subject to forfeiture if the director ceases to
be a member of the board of directors. However, if a director ceases to be a
director before the last day of a retainer period other than by reason of
death, disability or retirement from the board of directors at or after age 65,
he or she will be required to pay the company in cash an amount equal to the
unearned portion of the $15,000 retainer based on the number of days remaining
in the retainer period.
We have reserved 150,000 shares for issuance under the 1999 Director Stock
Award Plan, subject to adjustment as provided in the plan.
In addition, each director will receive $2,000 in cash for each board of
directors meeting attended and for each committee meeting attended on days on
which the board of directors does not also meet. We also reimburse directors
for out-of-pocket expenses incurred in connection with attending board of
directors and committee meetings.
Directors will also be eligible to receive stock option grants under our
1999 Stock Option Plan. See "-- Stock Option Agreements and Plans--1999 Stock
Option Plan." Those persons who have become or are expected to become directors
of GreenMountain.com, other than Ms. Dillon-Ridgley, have been granted options
exercisable to purchase shares of common stock. Ms. Dillon-Ridgley is expected
to be granted options under our 1999 Stock Option Plan. See "Principal
Stockholders."
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<PAGE>
Executive Compensation
The following table sets forth summary information concerning the
compensation awarded to, earned by or paid for services rendered to us in all
capacities during 1997 and 1998, by our former and current Chief Executive
Officer and our four most highly compensated executive officers, other than our
Chief Executive Officer, who were serving as executive officers at the end of
1998. Mr. Hyde ceased to be an executive officer effective as of October 6,
1998. Mr. Luther retired as an executive officer effective as of January 30,
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------------
Name and All Other
Principal Position Year Salary Bonus Shares Underlying Options Compensation
------------------ ---- ------------------- ------------------------- ------------
<S> <C> <C> <C> <C> <C>
M. David White(1)....... 1998 $ 37,576 $ 0 0 $ 258(2)
Chief Executive Officer 1997 -- -- -- --
Douglas G. Hyde(3)...... 1998 285,000 0 0 153,697(4)
Chief Executive Officer 1997 98,679 106,875 5,970 1,200(4)
Kevin W. Hartley........
Vice President, 1998 155,000 125,000 0 8,348(5)
Marketing 1997 54,524 34,875 7,761 775(5)
Thomas C. Boucher....... 1998 150,000 45,000 0 9,743(6)
Vice President, Energy 1997 51,786 33,750 6,567 1,125(6)
Supply and Business
Development
David B. Luther(7)......
Vice President, 1998 150,000 45,000 0 18,820(8)
Operations 1997 60,714 33,750 2,985 8,413(8)
Peter H. Zamore......... 1998 140,000 45,000 0 9,204(9)
Vice President, General 1997 48,952 31,500 5,970 1,050(9)
Counsel and Secretary
</TABLE>
- --------
(1) Mr. White became the Chief Executive Officer as of October 5, 1998. Mr.
White's annualized salary for 1998 was $155,000.
(2) Represents contributions to our 401(k) plan.
(3) Mr. Hyde resigned as Chief Executive Officer and ceased to be an executive
officer as of October 6, 1998. After that date, he continued as an employee
at the same level of compensation until April 6, 1999, when he ceased to be
an employee.
(4) For 1998, represents severance compensation in the amount of $142,500,
contributions to our 401(k) plan in the amount of $9,832 and payments for
life insurance in the amount of $1,365. For 1997, represents contributions
to our 401(k) plan in the amount of $1,200.
(5) For 1998, represents contributions to our 401(k) plan in the amount of
$7,932 and payments for life insurance in the amount of $416. For 1997,
represents contributions to our 401(k) plan in the amount of $775.
(6) For 1998, represents contributions to our 401(k) plan in the amount of
$9,132 and payments for life insurance in the amount of $611. For 1997,
represents contributions to our 401(k) plan in the amount of $1,125.
(7) Mr. Luther retired effective as of January 30, 1999.
(8) For 1998, represents contributions to our 401(k) plan in the amount of
$6,820 and payments for housing costs in the amount of $12,000. For 1997,
represents contributions to our 401(k) plan in the amount of $1,125 and
payments for housing costs in the amount of $7,288.
(9) For 1998, represents contributions to our 401(k) plan in the amount of
$8,432 and payments for life insurance in the amount of $772. For 1997,
represents contributions to our 401(k) plan in the amount of $1,050.
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Option Exercises In Last Fiscal Year And Option Grants In Last Fiscal Year
We did not grant any options to the executive officers named in the summary
compensation table above during 1998.
Fiscal Year End Option Values
The following table provides information, for each of the executive officers
named in the summary compensation table above, regarding unexercised options
held as of December 31, 1998. No options were exercised during 1998.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
December 31, 1998(1) December 31, 1998
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
M. David White........... 0 0 0 0
Douglas G. Hyde.......... 5,970 0 0 0
Kevin W. Hartley......... 3,104 4,657 0 0
Thomas C. Boucher........ 2,627 3,940 0 0
David B. Luther.......... 1,194 1,791 0 0
Peter H. Zamore.......... 2,388 3,582 0 0
</TABLE>
- --------
(1) Assuming our conversion from a limited liability company to a corporation
had occurred as of December 31, 1998.
Employment Agreements
Agreement With Vice Chairman
We have entered into a letter agreement, dated February 5, 1999, and amended
June 1, 1999 with Dennis M. Crumpler relating to his service to us as a
director, Vice Chairman, Chairman of the Executive Committee and consultant.
Under the agreement, Mr. Crumpler purchased an equity interest under our
Employee Unit Purchase Plan. See "Related Party Transactions--Subsequent
Transactions--Employee Unit Purchase Plan." In connection with the execution of
the agreement, in February 1999, we granted him an option exercisable to
purchase 60,000 shares of common stock at an exercise price of $3.33 per share
in connection with his service as a director. See "--Director Compensation." At
that time, we also granted him an option exercisable to purchase 427,500 shares
of common stock at an exercise price of $3.33 per share in connection with his
service as Vice Chairman. Under the agreement as amended, and subject to the
approval of the Special Compensation Committee, we expect to grant him
additional options to purchase 60,000 shares in connection with his service as
a director and 300,000 shares in connection with his service as Vice-Chairman
and Chairman of the Executive Committee, in each case at an exercise price per
share equal to the initial public offering price. These options provide or will
provide for vesting as to 20% of the underlying equity interest on the date of
grant and vesting as to 5% of the underlying equity interest on the first day
of each of the next 16 calendar quarters.
Employment Agreement With Our Chief Executive Officer
On October 5, 1998, we entered into an employment agreement with M. David
White, our Chief Executive Officer. The agreement provides that Mr. White will
receive an initial annual base salary of $155,000 and an annual incentive bonus
payable at the discretion of our board of directors. Mr. White did not receive
a bonus for 1998. In addition, he receives an annual expense allowance of up to
$50,000 for transportation and housing. Mr. White also receives health, term
life and disability insurance and is eligible to participate in other benefit
plans made available to our senior executives.
Under the agreement, Mr. White purchased an equity interest under our
Employee Unit Purchase Plan. See "Related Party Transactions--Subsequent
Transactions--Employee Unit Purchase Plan." Under the
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<PAGE>
agreement, in January 1999 we granted him an option exercisable to purchase
900,000 shares of common stock at an exercise price of $3.33 per share. This
option provides for vesting as to 20% of the underlying equity interest on
February 2, 1999 and vesting as to 5% of the underlying equity interest on the
first day of each of the next 16 calendar quarters. In addition, pursuant to
antidilution provisions of the agreement, in connection with the completion of
a private equity offering in February 1999 we granted him an option exercisable
to purchase 225,000 shares of common stock at an exercise price of $6.67 per
share. This option provides for vesting as to 20% of the underlying equity
interest on the date of grant and vesting as to 5% of the underlying equity
interest on the first day of each of the next 16 calendar quarters.
Mr. White's employment agreement provides for his employment until December
31, 2003, but his employment may be terminated earlier by either party. If we
terminate his employment for cause or he terminates his employment without good
reason, he will receive no further compensation or other benefits from us,
except compensation that has been accrued but not paid and benefits that we are
required by law to continue. If we terminate his employment without cause or he
terminates his employment with good reason, he will receive salary and
benefits, including health, life and disability insurance, for up to one year
following his termination and, if no member of the Wyly family is chairman of
the board of directors of GreenMountain.com, the options granted to him as
described above will immediately vest and be exercisable.
Agreement Between Highland Stargate And Our Chief Executive Officer
At the time he accepted his position with us, David White, our Chief
Executive Officer, also entered into an agreement with Highland Stargate, an
entity controlled by the Wyly family. That agreement contemplates that
Mr. White will provide investment advisory services to Highland and its
affiliates, but expressly provides that performance of those services will not
interfere with the performance by him of his duties to us on a substantially
full-time basis. In consideration for his services, Highland agreed to pay Mr.
White an amount sufficient to cause Mr. White's total annual compensation from
Highland, its affiliates and GreenMountain.com to equal not less than
$1,000,000 for the years 1999 through 2003 and a similar prorated amount for
that portion of 1998 subject to the agreement. Highland also agreed to lend
Mr. White $3,000,000 for the purpose of refinancing outstanding indebtedness
and making investments. Highland further agreed to provide Mr. White investment
opportunities, including the opportunity to invest in any significant new
venture of any Highland affiliate on a cost basis similar to Highland and its
affiliates. The loans to Mr. White bear interest at 6%, compounded annually,
are recourse and are secured by real estate and specified investment securities
owned by Mr. White including stock and options issued by us.
Highland agreed to reimburse Mr. White's business expenses incurred on its
behalf and to provide health and similar insurance benefits substantially
similar to those contemplated in his agreement with us if we do not provide
them. The agreement contains provisions related to confidentiality,
noninterference by Mr. White in Highland's business, indemnification of
Mr. White against claims resulting from his employment by Highland and other
matters of a nature commonly found in agreements of this type.
Mr. White's Highland agreement provides for his employment until
December 31, 2003. Upon termination of his employment by Mr. White, by Highland
for cause or as a result of death or disability, the agreement provides that
Mr. White will receive no further compensation except for compensation that has
accrued prior to termination and for benefits required by law. Upon termination
by Highland without cause, the agreement further provides for the payment of
aggregate salary and bonus compensation which he would otherwise have been
entitled to receive through December 31, 2003. The contract further provides
that the compensation obligations of Highland to Mr. White will be deemed
satisfied if Mr. White's realized and unrealized profits with respect to
specified investment securities securing the loans described above exceed
$10,000,000.
Agreement Between Highland Stargate And Our Chief Financial Officer
At the time he accepted his position with us Scott Canon, our Chief
Financial Officer, entered into a substantially similar agreement with
Highland. Mr. Canon's agreement provided that Mr. Canon would receive
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a minimum of $500,000 per year for the years 1999 through 2002, together with
an amount of $1,250,000 if GreenMountain.com becomes bankrupt or insolvent, or
has been liquidated or dissolved, on or before December 31, 2003. Mr. Canon's
agreement with Highland does not provide for loans. Highland's obligation to
pay compensation to Mr. Canon will be deemed satisfied if his realized and
unrealized profits with respect to investment in fully transferable
GreenMountain.com securities shall exceed $5,000,000 for ten consecutive days
following consummation of an initial public offering.
Employment Agreements With Other Executive Officers
On August 6, 1997, in connection with our initial formation we entered into
a three-year employment agreement with each of Thomas C. Boucher, Kevin W.
Hartley, Douglas G. Hyde, David B. Luther and Peter H. Zamore. Each of these
agreements provides that the executive will receive a minimum specified annual
salary and will be entitled to participate in any benefit plan made generally
available by us to our executives and key management employees. The minimum
specified annual salaries are as follows:
<TABLE>
<CAPTION>
Base
Name Salary
---- --------
<S> <C>
Thomas C. Boucher............................................... $150,000
Kevin W. Hartley................................................ 155,000
Douglas G. Hyde................................................. 285,000
David B. Luther................................................. 150,000
Peter H. Zamore................................................. 140,000
</TABLE>
During 1998, each of these executives was paid a salary equal to his base
salary and each of these executives, other than Mr. Hyde, who received no bonus
for 1998, received bonuses for 1998 as follows: Mr. Hartley, $125,000; Mr.
Boucher, $45,000; Mr. Luther, $45,000; and Mr. Zamore, $45,000. The bonuses
were determined by the management committee of the limited liability company on
a case-by-case basis based on each executive's contribution to the limited
liability company; the bonus awards were not tied to any specific performance
or similar criteria.
If we terminate the executive's employment for cause or the executive
terminates his employment without good reason, we have no further obligations
under the agreement other than to pay the executive's salary through the date
of termination. If we terminate the executive's employment without cause or the
executive terminates his employment for good reason, we are required to
continue to pay the executive an amount equal to his salary and provide medical
and dental insurance coverage for up to one year following termination.
Contemporaneously with the execution and delivery of these employment
agreements on August 6, 1997, each of these executives was granted an option
exercisable to purchase the number of shares indicated below at an exercise
price of $75.40 per share:
<TABLE>
<CAPTION>
Number of Shares
Name Underlying Option
---- -----------------
<S> <C>
Thomas C. Boucher...................................... 6,567
Kevin W. Hartley....................................... 7,761
Douglas G. Hyde........................................ 14,925
David B. Luther........................................ 2,985
Peter H. Zamore........................................ 5,970
</TABLE>
These options provide for vesting as to 20% of the underlying equity interest
on the date of grant and vesting as to 20% of the underlying equity interest on
each of the first four anniversaries of the grant date. In addition, the
unvested portion of these options becomes immediately exercisable upon the
closing of this offering.
On October 6, 1998, we entered into a separation agreement and release with
Mr. Hyde. Under that agreement Mr. Hyde resigned as our Chief Executive
Officer, but continued as our employee at the level of
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<PAGE>
compensation provided in his employment contract until April 6, 1999. We made
an initial cash payment of $142,500 to him shortly after the execution of the
agreement, a second cash payment of $142,500 to him shortly after December 31,
1998 and a third cash payment of $142,500 to him in April 1999. The agreement
provides that his option granted on August 6, 1997, to the extent vested on
April 6, 1999, will remain exercisable until August 6, 2002. Under the
agreement, he was permitted to invest under the Employee Unit Purchase Plan.
See "Related Party Transactions--Subsequent Transactions--Employee Unit
Purchase Plan." Under the agreement, Mr. Hyde is prohibited from engaging in
some competitive activities and from recruiting our employees and soliciting
our customers during the two-year period ending April 6, 2001.
Stock Option Agreements And Plans
Options Granted Upon Formation Of The Limited Liability Company
On August 6, 1997, options were granted to officers and advisors of the
limited liability company in connection with its formation. These grants are
evidenced by Operating Management Option Agreements and Supervisory Management
Option Agreements dated as of August 6, 1997. As of March 31, 1999, there were
outstanding under these agreements options exercisable for 47,883 shares of
common stock at an exercise price of $75.20 per share and options exercisable
for 34,029 shares of common stock at an exercise price of $75.40 per share. See
"--Employment Agreements--Employment Agreements with Other Executive Officers"
and "Shares Eligible for Future Sale."
1997 Employee Ownership Plan
In 1997, our predecessor adopted a 1997 Employee Ownership Plan. Under the
1997 Employee Ownership Plan, our predecessor from time to time granted options
to employees who had not previously entered into an agreement concerning an
option to purchase interests in the limited liability company. Options were
granted under the 1997 Employee Ownership Plan during the fiscal year ended
December 31, 1998 on a case-by-case basis. Based on input from the executive
officers, the management committee of the limited liability company considered
the contributions of each recipient to the limited liability company in making
the grants. In addition, to attract the talent necessary to enhance our growth,
the management committee considered the potential contributions of the
individuals in granting options to new employees.
As of March 31, 1999, there were outstanding under the 1997 Employee
Ownership Plan options exercisable for 7,758 shares of common stock at an
exercise price of $75.40. No additional options are expected to be granted
under the 1997 Employee Ownership Plan. See "Shares Eligible for Future Sale."
1999 Unit Option Plan
In 1999, our predecessor adopted a 1999 Unit Option Plan pursuant to which
the management committee or the committee administering the plan could
designate individuals eligible to receive options. Under the 1999 Unit Option
Plan, our predecessor granted options to directors, executive officers,
employees and consultants. As of March 31, 1999, there were outstanding under
the 1999 Unit Option Plan options exercisable for 4,862,400 shares of common
stock at an exercise price of $3.33 and 1,068,000 shares of common stock at an
exercise price of $6.67. Since March 31, 1999, options to purchase an
additional 78,000 shares at an exercise price of $13.33 and 287,697 shares at
an exercise price of $12.00 have been granted in connection with the hiring of
new employees or promotions. See "Shares Eligible for Future Sale."
Grants, including grants to members of the management committee of the
limited liability company, made under the 1999 Unit Option Plan were approved
by the management committee of the limited liability company. The intent of the
management committee in making grants is to attract and retain the best
available talent and encourage the highest level of performance by providing an
opportunity to participate in any increase in our equity value. Based on input
from the executive officers, the management committee considered the
contributions of each recipient to the limited liability company in making the
grants. In addition, the management committee considered the economic
incentives necessary to attract directors, executive officers and employees to
a company of our size and limited operating history.
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1999 Stock Option Plan
Prior to the closing of this offering, we will adopt a 1999 Stock Option
Plan, which will amend and restate the 1997 Employee Ownership Plan and the
1999 Unit Option Plan. The purpose of the 1999 Stock Option Plan is to attract
and retain the best available talent and encourage the highest level of
performance by executive officers, key employees, directors, advisors and
consultants, and to provide them with incentives to put forth maximum efforts
for the success of our business, in order to serve the best interests of
GreenMountain.com and its stockholders. We expect that option grants under the
1999 Stock Option Plan will be a key element of our compensation strategy, and
that we will utilize the reservation of shares under the 1999 Stock Option
Plan to the maximum extent practicable. Subject to the approval of the Special
Compensation Committee and our board of directors, we expect in connection
with this offering to grant to Sam Wyly an option to purchase 462,500 shares
of common stock, to Dennis Crumpler an option to purchase 360,000 shares of
common stock, to Dennis Kelly an option to purchase 675,000 shares of common
stock and to a new director nominee, nine new employees and four new advisors
options to purchase an aggregate of 449,000 shares of common stock, in each
case at an exercise price per share equal to the initial public offering
price. Of these, options to purchase 75,000 shares of common stock will vest
as to 100% of the underlying shares on the date of grant, options to purchase
45,000 shares of common stock will vest as to 50% of the underlying shares on
the date of grant, as to 3% of the underlying shares on the first day of each
of the next 15 calendar quarters and as to 5% of the underlying shares on the
first day of the 16th calendar quarter, and options to purchase 1,826,500
shares of common stock will vest as to 20% of the underlying shares on the
date of grant and as to 5% of the underlying shares on the first day of each
of the next 16 calendar quarters. Further, we expect that, following the
closing of this offering our directors who are actively involved in the
management of our business and our executive officers will from time to time
receive substantial option grants.
Administration. The 1999 Stock Option Plan will be administered by the
Special Compensation Committee and the full board of directors.
Options. The 1999 Stock Option Plan will authorize the grant of stock
options to purchase shares of GreenMountain.com common stock. Grants under the
1999 Stock Option Plan are not intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code.
Number of Shares Reserved. The total number of shares of common stock that
will be available for issuance under the 1999 Stock Option Plan is 9,304,713.
However, this number will be increased, if necessary, on the last date of each
fiscal quarter so that the sum of:
(1) the total number of shares of common stock previously issued upon the
exercise of stock options;
(2) the total number of shares of common stock then subject to outstanding
stock options; and
(3) the total number of shares of common stock then remaining available
under the 1999 Stock Option Plan to be made subject to future grants of
stock options
equals 20% of the total number of outstanding shares of common stock of
GreenMountain.com, computed on a fully-diluted basis.
The Special Compensation Committee and the board of directors may make
additional adjustments in the maximum number of shares available under the
1999 Stock Option Plan or in the number of shares of common stock covered by
outstanding options, in the purchase price per share of common stock covered
by options, and/or in the kind of shares covered (including shares of another
issuer), as the Special Compensation Committee or the board of directors in
its sole discretion, exercised in good faith, may determine is equitably
required to prevent dilution or enlargement of the rights of 1999 Stock Option
Plan participants resulting from any change in our capital structure, merger,
consolidation, spin-off, reorganization, liquidation, issuance of rights or
warrants to purchase securities or any other corporate transaction or event
having a similar effect.
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<PAGE>
Eligibility. Our executive officers, key employees, directors, advisors and
consultants, and prospective employees, directors, advisors and consultants,
will be eligible to receive grants of stock options.
Transferability. Each option granted pursuant to the 1999 Stock Option Plan
may be subject to any transfer restrictions as the Special Compensation
Committee or the board of directors determines.
Description of Awards. The 1999 Stock Option Plan will not specify a maximum
term for stock options. The exercise price of the options may not be less than
the fair market value per share of common stock on the grant date. The Special
Compensation Committee or the board of directors may, without the consent of
the holder of an option, amend the terms of the option in several respects,
including acceleration of the time at which the option may be exercised,
extension of the expiration date, reduction of the exercise price and waiver of
other conditions or restrictions.
Each grant of options will specify the number of shares of common stock, the
exercise price and any vesting schedule and state whether the exercise price is
payable in cash, by the actual or constructive transfer to GreenMountain.com of
nonforfeitable, unrestricted shares of common stock already owned by the
participant having an actual or constructive value as of the time of exercise
equal to the total exercise price, by any other legal consideration authorized
by the Special Compensation Committee or the board of directors or by a
combination of such methods of payment.
The maximum aggregate number of shares of common stock with respect to which
options may be granted to any participant during any single calendar year will
not exceed 2,346,656.
Vesting of Options Upon a Change in Control. The stock option agreement
evidencing any stock option granted under the 1999 Stock Option Plan may
provide that the stock option will become exercisable if there is a change in
control of GreenMountain.com or in the event of similar transactions or events.
The specific terms of any such provision will be set forth in the stock option
or other agreement or in any agreement.
Amendment and Termination. The board of directors may amend or terminate the
1999 Stock Option Plan at any time. The termination of the 1999 Stock Option
Plan will not adversely affect the terms of any outstanding options. If any
law, rule or regulation removes or lessens any restrictions imposed for
options, the Special Compensation Committee or the board of directors may amend
the 1999 Stock Option Plan and all options then outstanding will be subject to
such amendment.
Grants Under the Plan. No options have been granted under the 1999 Stock
Option Plan and it is not possible to determine the specific awards of options
that will be granted to various individuals in the future under the 1999 Stock
Option Plan. However, we expect to issue options under the 1999 Stock Option
Plan to Sam Wyly, Dennis Crumpler, Dennis Kelly and 14 other persons as
indicated above.
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Grants To Directors, Director Nominees And Executive Officers Named In Summary
Compensation Table
The following table sets forth information regarding options granted prior
to, and outstanding as of, the date of this prospectus to directors and
director nominees and executive officers named in the summary compensation
table included above.
<TABLE>
<CAPTION>
Number of
Shares
Date Underlying Exercise Expiration
Name Granted Options(1) Price Date
---- ------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Sam Wyly(2)........................ 8/06/97 11,970 (3) $75.20 8/06/02
1/15/99 487,500 (4) $ 3.33 4/02/03
2/17/99 172,500 (5) $ 6.67 4/18/03
Dennis M. Crumpler(6).............. 2/05/99 487,500 (7) $ 3.33 4/06/03
Evan A. Wyly....................... 8/06/97 13,464 (3) $75.20 8/06/02
1/15/99 487,500 (4) $ 3.33 4/02/03
2/17/99 112,500 (5) $ 6.67 4/18/03
Mark Cuban......................... 2/14/99 75,000 (8) $ 3.33 4/16/03
Reed E. Maltzman................... 2/04/99 75,000 (8) $ 3.33 4/16/03
Richard E. Hanlon.................. 2/04/99 75,000 (8) $ 3.33 4/16/03
Lisa Wyly(9)....................... 8/06/97 5,985 (3) $75.20 8/06/02
1/15/99 150,000 (4) $ 3.33 4/02/03
H. Lee S. Hobson................... 1/15/99 261,000 (10) $ 3.33 4/02/03
M. David White..................... 1/15/99 900,000 (4) $ 3.33 4/02/03
2/17/99 225,000 (11) $ 6.67 4/17/03
Douglas G. Hyde.................... 8/06/97 5,970 (12) $75.40 8/06/02
Kevin W. Hartley................... 8/06/97 7,761 (3) $75.40 8/06/02
1/15/99 195,000 (4) $ 3.33 4/02/03
2/17/99 15,000 (5) $ 6.67 4/18/03
Thomas C. Boucher.................. 8/06/97 6,567 (3) $75.40 8/06/02
1/15/99 135,000 (4) $ 3.33 4/02/03
2/17/99 15,000 (5) $ 6.67 4/18/03
David B. Luther.................... 8/06/97 1,194 (13) $75.40 8/06/02
Peter H. Zamore.................... 8/06/97 5,970 (3) $75.40 8/06/02
1/15/99 135,000 (4) $ 3.33 4/02/03
2/17/99 15,000 (5) $ 6.67 4/18/03
</TABLE>
- --------
(1) Reflects our conversion from a limited liability company to a corporation.
(2) Does not include 3,592 shares issuable upon the exercise of options that
have become vested and are owned by four family trusts of which Sam Wyly is
trustee or 2,396 shares issuable upon the exercise of unvested options that
become exercisable upon the completion of this offering and are owned of
record by the same four family trusts. Subject to the approval of the
Special Compensation Committee and our board of directors, we expect in
connection with this offering to grant to Sam Wyly an option to purchase
462,500 shares, at an exercise price per share equal to the initial public
offering price. This option will provide for vesting as to 20% of the
underlying shares on the date of grant and vesting as to 5% of the
underlying shares on the first day of each of the next 16 calendar
quarters.
(3) To date, these options have become vested with respect to 60% of the
underlying shares; the unvested portion will become exercisable upon the
closing of this offering.
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<PAGE>
(4) These options provide for vesting as to 20% of the underlying shares on
February 2, 1999 and vesting as to 5% of the underlying shares on the first
day of each of the next 16 calendar quarters.
(5) These options provide for vesting as to 20% of the underlying shares on
February 18, 1999 and vesting as to 5% of the underlying shares on the
first day of each of the next 16 calendar quarters.
(6) Subject to the approval of the Special Compensation Committee and our board
of directors, we expect in connection with this offering to grant to Mr.
Crumpler an option to purchase 360,000 shares at an exercise price per
share equal to the initial public offering price. This option will provide
for vesting as to 20% of the underlying shares on the date of grant and
vesting as to 5% of the underlying shares on the first day of each of the
next 16 calendar quarters.
(7) These options provide for vesting as to 20% of the underlying shares on
February 6, 1999 and vesting as to 5% of the underlying shares on the first
day of each of the next 16 calendar quarters.
(8) These options provide for immediate vesting.
(9) Does not include 898 shares issuable upon the exercise of options that
have become vested and are owned of record by a family trust of which Lisa
Wyly is trustee or 599 shares issuable upon the exercise of unvested
options which become exercisable upon the closing of this offering and are
owned of record by the same family trust.
(10) These options provide for vesting as to 20% of the underlying shares on
February 2, 1999 and vesting as to 5% of the underlying shares on the
first day of the next 16 calendar quarters. Pursuant to internal policies
of Maverick Capital, Ltd., Mr. Hobson has transferred the options to
purchase 16,800 shares to Maverick Fund II, Ltd., 79,200 shares to
Maverick Fund USA, Ltd. and 165,000 shares to Maverick Fund L.D.C.
(11) These options provide for vesting as to 20% of the underlying shares on
the date of grant and vesting as to 5% of the underlying shares on the
first day of each of the next 16 calendar quarters.
(12) Pursuant to Mr. Hyde's separation agreement and release, these options
will remain exercisable until August 6, 2002. See "--Employment
Agreements--Employment Agreements with Other Executive Officers."
(13) Upon his retirement, Mr. Luther forfeited options to purchase an
additional 1,791 shares.
We expect in connection with this offering to grant to Dianne Dillon-
Ridgley, a director nominee, an option to purchase 75,000 shares at an exercise
price per share equal to the initial public offering price. This option will
provide for vesting as to 100% of the underlying shares on the date of grant.
Compensation Committee Interlocks And Insider Participation
The limited liability company did not have a compensation committee.
Decisions regarding compensation were made by the full management committee of
the limited liability company, including Sam Wyly, the Chairman of that
committee. Mr. Wyly may be deemed to have been an executive officer of the
limited liability company because of policy making functions performed by him
as Chairman of its management committee.
Sam Wyly is an executive officer and director of Sterling Software and
Michaels Stores. He serves as a member of the executive committee and stock
option committee of Sterling Software and as a member of the compensation
committee of Michaels Stores. Accordingly, Sam Wyly has participated in
decisions related to compensation of executive officers of each of
GreenMountain.com, Sterling Software and Michaels Stores.
Other than Sam Wyly, who may be deemed to have been an executive officer,
none of the limited liability company's executive officers served on the
compensation committee, or on any full board of directors or other board
committee that performs functions similar to a compensation committee, of any
entity that has one or more of its executive officers who served as a member of
the limited liability company's management committee.
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<PAGE>
Limitation Of Liability And Indemnification Matters
Our certificate of incorporation limits the liability of our directors to
the maximum extent permitted by Delaware law. Delaware law provides that a
director of a corporation will not be personally liable for monetary damages
for breach of that individual's fiduciary duties as a director except for
liability for any of the following:
.a breach of the director's duty of loyalty to the corporation or its
stockholders;
.any act or omission not in good faith or that involves intentional
misconduct or a knowing violation of the law;
.unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
.any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or recission.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers, as well as other employees
and individuals, against attorneys' fees and other expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with any threatened, pending or completed actions, suits or
proceedings in which such person was or is a party or is threatened to be made
a party by reason of such person being or having been a director, officer,
employee or agent of the corporation. The Delaware General Corporation Law
provides that Section 145 is not exclusive of other rights to which those
seeking indemnification may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Our certificate of incorporation and bylaws provide that we are required to
indemnify our directors and officers to the maximum extent permitted by law.
Our bylaws also require us to advance expenses incurred by an officer or
director in connection with the defense of any action or proceeding arising out
of that party's status or service as a director or officer of GreenMountain.com
or as a director, officer, employer or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
if serving as such at our request. Our bylaws also permit us to secure
insurance on behalf of any director or officer for any liability arising out of
his or her actions in a representative capacity.
We intend to enter into indemnification agreements with our directors and
some of our officers containing provisions that:
.indemnify, to the maximum extent permitted by Delaware law, those
directors and officers against liabilities that may arise by reason of
their status or service as directors or officers, except liabilities
arising from willful misconduct of a culpable nature;
.to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified; and
.to obtain directors' and officers' liability insurance if maintained for
other directors or officers.
We believe that the provisions of our certificate of incorporation and
bylaws described above and indemnification agreements are necessary to attract
and retain qualified persons as directors and officers. The limited liability
company had liability insurance for its management committee members and
officers and we intend to obtain directors' and officers' liability insurance
for directors and officers of GreenMountain.com.
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It's a small planet.(SM)
<PAGE>
RELATED PARTY TRANSACTIONS
Formation Of The Business
Background Of The Business
Between 1994 and 1997, an affiliate of Green Mountain Power Corporation
conducted extensive market research to evaluate the viability of a nationally-
marketed, premium-priced green electricity product supported by a strong pro-
environmental brand identity. This market research was designed to identify:
.The most attractive consumer segments;
.The key elements of environmental positioning; and
.The optimal design of potential green electricity products.
An affiliate of Green Mountain Power Corporation also participated, together
with 20 other companies, in deregulated energy pilot programs in Massachusetts
and New Hampshire in order to test the viability of marketing green electricity
and natural gas products.
Formation Of The Limited Liability Company
On August 6, 1997, a subsidiary of Green Mountain Power Corporation and
Green Funding I entered into a limited liability company agreement relating to
the formation of Green Mountain Energy Resources L.L.C.
Limited Liability Company Agreement. Under the limited liability company
agreement:
.The subsidiary of Green Mountain Power Corporation contributed service
marks, including our "Choose wisely. It's a small planet." and "Green
Mountain Energy Resources" service marks, some marketing studies and
analyses and its rights under agreements with several third-party service
providers, in exchange for a 33% equity interest in the limited liability
company;
.Green Funding I contributed $8.0 million and committed to contribute an
additional $22.0 million over time, in exchange for a 67% equity interest
in the limited liability company; and
.Immediately following the initial contribution by Green Funding I, the
subsidiary of Green Mountain Power Corporation received a distribution
from the limited liability company of $4.0 million.
The limited liability company agreement also contained provisions relating
to, among other things, the allocation of profits and losses, the management of
the limited liability company, restrictions on transfer and registration
rights.
Non-Compete and Name Use Agreement. In connection with the formation of the
limited liability company, on August 6, 1997, Green Mountain Power Corporation,
Green Funding I and the limited liability company entered into an agreement
containing:
.Covenants by Green Mountain Power Corporation and Green Funding I
generally not to engage in the retail energy business, subject to
exceptions related to Green Mountain Power Corporation's then-existing
business activities;
.Covenants by Green Mountain Power Corporation and Green Funding I not to
use the Green Mountain name in connection with business activities similar
to those conducted by the limited liability company; and
.Other covenants by Green Mountain Power Corporation relating to the use of
the Green Mountain name.
Transfer of Employees. In connection with the formation of the limited
liability company, on or about August 6, 1997, some individuals who were
employed by Green Mountain Power Corporation ceased their
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<PAGE>
employment with that company and became employees of the limited liability
company. These individuals included Ms. Blunden, Mr. Boucher, Mr. Hartley, Mr.
Hyde, Mr. Luther, Ms. O'Neill, Mr. Rawls and Mr. Zamore.
Subsequent Transactions
September 1997 Capital Infusion
On September 29, 1997, Green Funding I committed an additional $10.0 million
to the limited liability company in exchange for an additional equity interest
in the limited liability company, raising Green Funding I's total equity
interest to approximately 73%.
August 1998 Short-Term Loan
On August 26, 1998, the limited liability company arranged to borrow $10.0
million from Security Capital, Ltd. This loan, which bore interest at a rate of
10% per annum, was made by Security Capital, Ltd. Several entities, whose stock
is owned by irrevocable trusts of which members of the Wyly family are
beneficiaries, provided credit enhancement for the loan. The loan from Security
Capital was repaid in full as described below effective as of November 25,
1998. Total interest paid on that loan was $167,083.
November 1998 Capital Infusion
On November 20, 1998, Green Funding I committed an additional $20.0 million
to the limited liability company in exchange for an additional equity interest
in the limited liability company, raising Green Funding I's total equity
interest to approximately 99%. This contribution consisted of the payment in
full of the $10.0 million short-term note described above for the benefit of
the limited liability company and $10.0 million in cash.
December 1998 Repurchase Of Green Mountain Power Corporation's Equity
Interest
On December 23, 1998, Green Mountain Power Corporation, its subsidiaries,
Green Funding I and the limited liability company entered into an agreement
that provided for the termination of the non-compete and name use agreement
described above and the repurchase by the limited liability company of the
remaining approximately 1% equity interest held by the subsidiary of Green
Mountain Power Corporation. Under this agreement:
.Green Mountain Power Corporation agreed not to engage in the unregulated
marketing or retail sale of electricity or gas outside Vermont for seven
years;
.Green Mountain Power Corporation agreed not to use the Green Mountain
name, subject to a limited exception for activities in Vermont;
.The subsidiary of Green Mountain Power Corporation transferred to the
limited liability company its remaining equity interest, withdrew as a
member and caused its representative on the management committee of the
limited liability company to resign;
.The limited liability company agreed to pay Green Mountain Power
Corporation $1,000,000 in cash; and
.There were mutual releases granted between Green Funding I and the limited
liability company, on the one hand, and Green Mountain Power Corporation
and its subsidiaries, on the other hand.
As of January 1999, Green Funding I owned 100% of the equity interests in
the limited liability company represented by 6,000,000 common units.
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<PAGE>
Employee Unit Purchase Plan
During January and early February 1999, pursuant to our Employee Unit
Purchase Plan, 50 employees, consultants and advisors purchased 956,000 common
units of the limited liability company in the aggregate for total consideration
of $9.56 million. Upon our conversion from a limited liability company to a
corporation, these 956,000 common units were converted into the right to
receive 2,868,000 shares of common stock. Under the Employee Unit Purchase
Plan, participants were permitted to pay for the common units purchased with
cash or promissory notes, or with any combination of cash and promissory notes.
Promissory notes used to pay for the equity interests bear interest at 6% per
annum and become payable on the earliest of the obligor's death, termination of
the obligor's employment or services and December 31, 2003. On each of the
first four anniversaries of the date of the note, accrued and unpaid interest
will be added to principal. The notes are secured by all equity interests that
the participant currently owns, including those acquired under the Employee
Unit Purchase Plan, and all equity interests that the participant acquires in
the future, but are otherwise non-recourse to the obligor. The equity interests
securing these notes are held in escrow for our benefit. The following table
sets forth, for the persons named, the number of shares purchased and the
aggregate amount and type of consideration paid for them.
<TABLE>
<CAPTION>
Number of Amount of
Name Shares Cash Loan Total Consideration
---- --------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
Dennis M. Crumpler...... 600,000 $1,000,000 $1,000,000 $2,000,000
M. David White.......... 900,000 1,500,000 1,500,000 3,000,000
Dennis W. Kelly......... 120,000 200,000 200,000 400,000
Kevin W. Hartley........ 198,000 115,000 545,000 660,000
Julie D. Blunden........ 30,000 50,000 50,000 100,000
Thomas C. Boucher....... 31,200 52,000 52,000 104,000
Karen K. O'Neill........ 30,000 50,000 50,000 100,000
Peter H. Zamore......... 34,200 57,000 57,000 114,000
Jay LeDuc............... 7,800 13,000 13,000 26,000
Thomas Rawls............ 3,000 5,000 5,000 10,000
K. Scott Canon.......... 315,000 400,000 650,000 1,050,000
Michael Fulton.......... 60,000 100,000 100,000 200,000
--------- ---------- ---------- ----------
Totals................ 2,329,200 $3,542,000 $4,222,000 $7,764,000
========= ========== ========== ==========
</TABLE>
During this same period, 12 of our consultants and advisors purchased, in a
private equity offering, 44,000 common units of the limited liability company
in the aggregate for total consideration of $440,000. Upon our conversion from
a limited liability company to a corporation, these 44,000 common units were
converted into the right to receive 132,000 shares of common stock.
Private Equity Offering
On February 17, 1999, the limited liability company closed a private equity
offering. Investors in the offering purchased 1,515,500 common units of the
limited liability company in the aggregate for total consideration of $30.31
million. Upon our conversion from a limited liability company to a corporation,
these 1,515,500 common units were converted into the right to receive 4,546,500
shares of common stock. As a result of such purchases, Maverick Capital became
the beneficial owner of 750,000 common units, which were converted into the
right to receive 2,250,000 shares upon our conversion from a limited liability
company to a corporation, for an aggregate purchase price of $15.0 million.
Evan Wyly is a Managing Partner and Lee Hobson is a Partner of Maverick
Capital. In addition, Green Funding II acquired directly 500,000 common units,
which were converted into the right to receive 1,500,000 shares upon our
conversion from a limited liability company to a corporation, for an aggregate
purchase price of $10.0 million.
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Working Capital Funding Commitment
Pursuant to an agreement entered into in April 1999, Green Funding I has
committed to provide us with up to $22.0 million in cash to permit us to meet
our working capital needs for the remainder of our 1999 fiscal year. Any
advances under the agreement will bear interest at 6.0% per annum. The
agreement provides that accrued and unpaid interest will be capitalized and
added to principal on each June 30 and December 31. Principal, together with
accrued and unpaid interest, will be payable on the earlier of April 23, 2001
or the tenth day after the closing of this offering. Green Funding's obligation
to make advances under the agreement terminates upon the closing of this
offering. There is currently an advance of $5.0 million outstanding under the
funding agreement. See "Use of Proceeds."
Reorganization Transaction
In connection with this offering, we have converted our business from a
limited liability company to a corporation in order to have a business
organization form that is more typical of other publicly traded entities. This
conversion was accomplished by merging Green Mountain Energy Resources L.L.C.,
a Delaware limited liability company, into GreenMountain.com Company, a
Delaware corporation, on June 18, 1999. In connection with the conversion, the
limited liability company agreement terminated, except for covenants that, by
their terms, require performance after the termination of such agreement, and
each common unit in the limited liability company held by a member was
converted into a right to receive three shares of GreenMountain.com common
stock. In addition, all outstanding options and warrants exercisable for common
units of the limited liability company were, in effect, converted into options
or warrants exercisable for GreenMountain.com common stock.
The former members of the limited liability company will have registration
rights with respect to shares of GreenMountain.com they receive in the
conversion. See "Description of Capital Stock--Registration Rights."
We have been informed that, prior to the closing of this offering, the
shares of GreenMountain.com owned by each of Green Funding I and Green Funding
II will be distributed to the beneficial holders of the ownership interests in
those entities.
Other Transactions And Relationships
Agreements With Sterling Software
In February 1998, we entered into an agreement with Sterling Software, a
supplier of software products and services with expertise in network management
and automation. Under that agreement, Sterling Software provides us with
network management services and other information systems consulting services.
Under that agreement, we paid Sterling Software $828,611 for services provided
by it during 1998. We paid Sterling Software $576,857 during the first quarter
of 1999 in connection with that agreement.
In addition, we entered into another agreement with Sterling Software in
early 1999 for the 1999 calendar year. This contract expanded the scope of
Sterling Software services to include programming and operational support for
data transmissions with all utility companies with which GreenMountain.com
interfaces, development of an enterprise database for our Information Network
and other software development projects for an approximate contract amount of
$4.4 million. As of March 31, 1999, we owed Sterling Software $771,117 under
that agreement, all of which had been paid as of the date of this prospectus.
Each of the agreements with Sterling Software terminates upon the earliest
to occur of completion of the services by Sterling Software, the date 30 days
after Sterling Software's receipt of written notice by us terminating the
agreement and the date on which either party is declared in default if that
party has breached a material provision of the agreement and failed within 15
days after receipt of notice of the default to cure or commence curing the
breach.
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<PAGE>
Sam Wyly and Evan Wyly are directors and stockholders of Sterling Software.
Each of the agreements with Sterling Software was negotiated on an arms' length
basis and GreenMountain.com believes that the terms of these agreements are
comparable to those that could have been obtained with an unrelated third
party.
Agreements With Former Management Committee Member
Effective as of January 4, 1999, Jason Elliott, son-in-law of Sam Wyly and
brother-in-law of Evan Wyly and Lisa Wyly, completed his service as a member of
the management committee of the limited liability company and agreed to serve
as a consultant. In connection with these services, as of the date of this
prospectus, Mr. Elliott has been paid $110,000 and has been granted options to
purchase 5,985 shares of common stock at an exercise price of $75.20, 75,000
shares of common stock at an exercise price of $3.33 and 75,000 shares of
common stock at an exercise price of $6.67. We have been informed that Edinburg
Fund, L.D.C., an investment fund, the voting and disposition decisions of which
are controlled by Mr. Elliott, has indicated its interest in acquiring
1,700,000 shares of common stock in this offering.
Transactions With Green Mountain Power Corporation
We paid $165,365 to Green Mountain Power Corporation for facilities
maintenance and other services during 1998. We received from Green Mountain
Power Corporation $73,191 for services provided to it by our employees during
1998.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of the date of this
prospectus, with respect to beneficial ownership of shares of common stock of
GreenMountain.com, by each person who we expect to beneficially own more than
5% of the common stock after the offering, by each director and director
nominee, by each executive officer named in the summary compensation table
included above and by all directors, director nominees and executive officers
as a group. The information in the table reflects the distributions of shares
owned by Green Funding I and Green Funding II to the beneficial holders of the
ownership interests in those entities. See "Related Party Transactions--
Reorganization Transaction."
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Owned
------------------
Name and Address Number of Shares Prior to After the
of Beneficial Owner(1) Beneficially Owned (2) Offering Offering
---------------------- ---------------------- -------- ---------
<S> <C> <C> <C>
Sam Wyly.......................... 2,084,325(3) 8.1% 5.5%
Dennis M. Crumpler................ 746,250(4) 2.9 2.0
Evan A. Wyly...................... 208,575 * *
Mark Cuban........................ 75,000 * *
Dianne Dillon-Ridgley............. 0 * *
Richard E. Hanlon................. 75,000 * *
Reed E. Maltzman.................. 75,000 * *
Lisa Wyly......................... 600,870(5) 2.3 1.6
H. Lee S. Hobson.................. 7,500 * *
M. David White.................... 1,237,500 4.8 3.3
Douglas G. Hyde................... 52,770 * *
Kevin W. Hartley.................. 268,761 1.0 *
Thomas C. Boucher................. 82,767 * *
Peter H. Zamore................... 85,170 * *
David B. Luther................... 33,594 * *
Maverick Capital, Ltd............. 4,200,300(6) 16.4 11.2
Locke Limited..................... 6,503,862(7) 25.5 17.3
Greenbriar Limited................ 2,312,406(8) 9.1 6.2
Devotion Limited.................. 1,920,421(9) 7.5 5.1
All directors, director nominees
and executive officers as a group
(20 persons)..................... 6,306,638 23.2% 16.1%
</TABLE>
- --------
*Less than 1%.
(1) Except as otherwise indicated, the address for each beneficial owner is c/o
GreenMountain.com Company, 55 Green Mountain Drive, P.O. Box 2206, South
Burlington, Vermont 05407-2206.
(2) For some beneficial owners, includes shares issuable upon the exercise of
options exercisable within 60 days and upon the closing of this offering,
as set forth in detail in the table set forth below.
(3) Includes 1,639,944 shares owned of record by four family trusts of which
Sam Wyly is trustee and 219,357 shares owned by the Cheryl R. Wyly Marital
Trust. Sam Wyly disclaims beneficial ownership of the shares and options
owned by these trusts.
(4) Includes 600,000 shares owned of record by a limited partnership of which
Dennis Crumpler is Manager and General Partner.
(5) Includes 548,388 shares owned of record by a family trust of which Lisa
Wyly is trustee. Ms. Wyly disclaims beneficial ownership of the shares and
options owned by the trust.
(6) Shares shown as beneficially owned by Maverick Capital, Ltd. are owned of
record by Maverick Fund II, Ltd., Maverick Fund USA, Ltd. and Maverick
Fund, L.D.C. Maverick Capital, Ltd. is the investment advisor for each of
Maverick Fund II, Ltd. and Maverick Fund, L.D.C., and is the general
partner of Maverick Fund USA, Ltd. As a result of such positions, Maverick
Capital, Ltd. has voting and investment power over shares owned of record
by these three entities. We have been informed that Maverick Capital, Ltd.
has indicated its interest in acquiring 100,000 shares of common stock in
this offering and that those shares would be held of record by Maverick
Fund II, Ltd., Maverick Fund USA, Ltd. and Maverick Fund, L.D.C. in
proportion to their current holdings. Assuming these acquisitions are made,
the percentage of shares beneficially owned by Maverick Capital, Ltd. after
the offering would increase to 11.4%. Evan Wyly is a managing partner of
Maverick Capital, Ltd. and may be deemed to be a beneficial owner of the
shares shown as beneficially owned by Maverick Capital, Ltd. Evan Wyly
disclaims beneficial ownership of all shares beneficially owned by Maverick
Capital, Ltd., and, accordingly, such shares are excluded from the
information in the table with respect to Evan Wyly. Lee S. Ainslie, III
controls the voting and disposition decisions of Maverick Capital, Ltd. The
address of Maverick Capital, Ltd. is 300 Crescent Court, Suite 1000,
Dallas, Texas 75201.
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<PAGE>
(7) All of the shares of Locke Limited are owned by a trust the sole trustee of
which is Aundyr Trust Company Ltd., a corporation possessing trust powers.
The beneficiaries of the trust, which include members of the family of Sam
Wyly, have no control over the trust or the trustee. The address of Locke
Limited is Locke Limited c/o Aundyr Trust Company Ltd., International
House, Castle Hill, Victoria Road, Douglas, Isle of Man IM2 4RB.
(8) All of the shares of Greenbriar Limited are owned by a trust the sole
trustee of which is Valmet Isle of Man Limited, a corporation possessing
trust powers. The beneficiaries of the trust, which include members of the
Sam Wyly family, have no control over the trust or the trustee. The address
of Greenbriar Limited is Greenbriar Limited c/o Valmet Isle of Man Limited,
Victoria House, Summer Hill Business Park, Douglas, Isle of Man IM2 4RW.
(9) All of the shares of Devotion Limited are owned by a trust the sole trustee
of which is Trident Trust Co. (I.O.M.) Ltd., a corporation possessing trust
powers. The beneficiaries of the trust, which include members of the Sam
Wyly family, have no control over the trust or the trustee. The address of
Devotion Limited is Devotion Limited c/o 12-14 Finch Road, Douglas, Isle of
Man IM99 1TT.
The following table sets forth information, as of the date of this
prospectus, with respect to beneficial ownership of shares of common stock of
GreenMountain.com issuable upon the exercise of options exercisable within 60
days or upon consummation of this offering, by each person who we expect to own
more than 5% of the common stock after the offering, by each director and
director nominee, by each executive officer named in the summary compensation
table included above and by all directors, director nominees and executive
officers as a group. The information in our table reflects the distributions of
shares owned by Green Funding I and Green Funding II to the beneficial holders
of the ownership interests in those entities.
<TABLE>
<CAPTION>
Shares Underlying
Shares Underlying Options Exercisable
Options Exercisable Upon Closing of
Name of Beneficial Owner Within 60 Days This Offering
------------------------ ------------------- -------------------
<S> <C> <C>
Sam Wyly........................... 208,774(1) 7,184(2)
Dennis M. Crumpler................. 146,250 0(3)
Evan A. Wyly....................... 188,078 5,386
Mark Cuban......................... 75,000 0
Dianne Dillon-Ridgley.............. 0 0(4)
Richard E. Hanlon.................. 75,000 0
Reed E. Maltzman................... 75,000 0
Lisa Wyly.......................... 49,489(5) 2,993(6)
H. Lee S. Hobson................... 0 0
M. David White..................... 337,500 0
Douglas G. Hyde.................... 5,970 0
Kevin W. Hartley................... 67,657 3,104
Thomas C. Boucher.................. 48,940 2,627
Peter H. Zamore.................... 48,582 2,388
David B. Luther.................... 1,194 0
Maverick Capital, Ltd.............. 78,300 0
Locke Limited...................... 0 0
Greenbriar Limited................. 0 0
Devotion Limited................... 0 0
All directors, director nominees
and executive officers as a group
(20 persons)...................... 1,571,371 26,701(7)
</TABLE>
- --------
(1) Includes 3,592 shares issuable upon the exercise of options owned of record
by four family trusts of which Sam Wyly is trustee. Sam Wyly disclaims
beneficial ownership of the options owned by these trusts.
(2) Includes 2,396 shares issuable upon the exercise of options owned of record
by four family trusts of which Sam Wyly is trustee. Sam Wyly disclaims
beneficial ownership of the options owned by the trust. This number does
not include 115,625 shares issuable, immediately or within 60 days, upon
the exercise of an option expected to be granted to Sam Wyly in connection
with this offering. See "Management--1999 Stock Option Plan."
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<PAGE>
(3) This number does not include 90,000 shares issuable, immediately or within
60 days, upon the exercise of an option expected to be granted to Dennis
Crumpler in connection with this offering. See "Management--1999 Stock
Option Plan."
(4) This number does not include 75,000 shares issuable immediately upon the
exercise of an option expected to be granted to Dianne Dillon-Ridgley in
connection with this offering. See "Management--1999 Stock Option Plan."
(5) Includes 898 shares issuable upon the exercise of options owned of record
by a family trust of which Lisa Wyly is trustee. Ms. Wyly disclaims
beneficial ownership of the options owned by the trust.
(6) Includes 599 shares issuable upon the exercise of options owned of record
by a family trust of which Lisa Wyly is trustee. Ms. Wyly disclaims
beneficial ownership of the options owned by the trust.
(7) This number does not include 168,750 shares issuable, immediately or within
60 days, upon the exercise of an option expected to be granted to Dennis
Kelly in connection with this offering. See "Management--1999 Stock Option
Plan."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our certificate of incorporation provides that we are authorized to issue
150,000,000 shares of common stock, par value $0.01 per share, and 50,000,000
shares of preferred stock, par value $0.01 per share. As of the date of this
prospectus, there are 25,546,500 outstanding shares of common stock held of
record by 91 stockholders, outstanding options to purchase 6,374,559 shares of
common stock, outstanding warrants to purchase 11,940 shares of common stock
and no outstanding shares of preferred stock. The foregoing number of
outstanding shares of common stock and number of stockholders assume the
exchange of each common unit of the limited liability company formerly
outstanding for three shares of common stock of the corporation in connection
with our conversion from a limited liability company to a corporation.
Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any dividends that may be declared by our board of directors,
subject to any preferential dividend rights of outstanding preferred stock. In
the event of the liquidation, dissolution or winding up of GreenMountain.com,
holders of common stock would be entitled to receive proportionately any of our
assets remaining after the payment of liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. Our outstanding
shares of common stock are, and the shares offered by us in this offering will
be, when issued and paid for, fully paid and nonassessable.
Preferred Stock
The board of directors has the authority, within the limitations and
restrictions stated in our certificate of incorporation, to provide by
resolution for the issuance of shares of preferred stock, in one or more
classes or series, and to fix the rights, preferences, privileges and
restrictions for them, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series and the designation of that series. The issuance of
preferred stock could adversely affect the voting and other rights of the
holders of common stock.
Registration Rights
After the closing of this offering, the holders of 68.0% of the outstanding
shares of common stock will hold registration rights that will allow them to
"piggyback" the registration of their shares under the Securities Act on future
registrations of our securities. Accordingly, whenever we propose to register
any shares of our common stock under the Securities Act (other than
registrations on Forms S-4 or S-8), these stockholders have the right to
include their shares of common stock in that registration. However, the number
of shares that those stockholders may include in any registration will be
reduced if the underwriters for that offering advise us that the aggregate
number of shares should be reduced. We are generally obligated to bear all
expenses, other than underwriting discounts and sales commissions, of the
registration of all shares of common stock of those stockholders. The
registration rights require those stockholders to indemnify us in some
circumstances. Registration of any of the shares of common stock held by
holders of registration rights generally would result in those shares becoming
freely tradable without restriction under the Securities Act immediately
following their distribution in the manner described in the applicable
registration statement.
Provisions Of Our Certificate of Incorporation, Our Bylaws And Delaware Law
Some provisions of our certificate of incorporation and bylaws and Delaware
law may have an anti-takeover effect and delay, defer or prevent a tender offer
or takeover attempt that a stockholder may consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
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<PAGE>
Classified Board Of Directors, Removal Of Directors And Filling Vacancies In
Directorships
Our certificate of incorporation provides that our board of directors is
divided into three classes of directors serving staggered three-year terms. See
"Management--Classified Board of Directors." In addition, our certificate of
incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of at least 80% of our voting securities
entitled to vote. Under our certificate of incorporation, any vacancy on our
board of directors, including a vacancy resulting from an enlargement of our
board of directors, may be filled by the vote of a majority of our directors
then in office. The classification of our board of directors and the
limitations on the removal of directors and filling of vacancies may deter a
third party from seeking to remove incumbent directors and simultaneously
gaining control of the board of directors by filling the vacancies created by
such removal with its own nominees.
Cumulative Voting
Our certificate of incorporation expressly denies stockholders the right to
cumulate votes in the election of directors. As a result, the holders of a
majority of the shares voted can elect all directors standing for election.
Stockholder Action And Special Meeting Of Stockholders
Our certificate of incorporation eliminates the ability of stockholders to
act by written consent in lieu of a meeting. It also provides that special
meetings of the stockholders may only be called by our Chairman, a Vice
Chairman, by our Secretary within ten calendar days after receipt of a written
request of a majority of the total number of directors (assuming no vacancies)
or as otherwise may be provided in a preferred stock designation and the
business permitted to be conducted at any such meeting will be limited to that
brought before the meeting that is specified in the notice of the meeting given
by or at the direction of our Chairman, a Vice Chairman or a majority of the
total number of directors (assuming no vacancies) or that is otherwise properly
brought before the meeting by the presiding officer or by or at the direction
of a majority of the total number of directors (assuming no vacancies).
Advance Notice Requirements For Stockholder Proposals And Directors
Nominations
Our bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders or nominate candidates for election as directors
at an annual meeting of stockholders must provide timely notice in writing. To
be timely, a stockholder's notice must be delivered to or mailed and received
at our principal executive offices not less than 60 days nor more than 90 days
prior to the anniversary date of the date on which we first mail our proxy
materials for the prior year's annual meeting of stockholders, except that if
there was no annual meeting held during the prior year or if the annual meeting
is called for a date that is not within 30 days before or after that
anniversary, notice by the stockholder in order to be timely must be received
not later than the close of business on the tenth day following the date on
which public announcement was first made of the date of the annual meeting. Our
bylaws also specify requirements as to the form and content of a stockholder's
notice. These provisions may preclude stockholders from bringing matters before
an annual meeting of stockholders or from making nominations for directors at
an annual meeting of stockholders.
Authorized But Unissued Shares
Authorized but unissued shares of common stock and preferred stock under our
certificate of incorporation will be available for future issuance without
stockholder approval. These additional shares may be used for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.
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<PAGE>
Supermajority Vote Requirements
Delaware law provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage. Our
certificate of incorporation and bylaws require the affirmative vote of the
holders of at least 80% of our voting securities entitled to vote, to amend,
repeal or adopt any provision inconsistent with some provisions, including
those provisions relating to:
.our classified board of directors;
.directorship vacancies and removal of directors;
.action by written consent of stockholders;
.special meetings of stockholders; and
.stockholder proposals and nominations of directors.
Delaware Section 203
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Section 203 prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the person became an interested stockholder,
unless the interested stockholder attained that status with the approval of the
board of directors or the business combination is approved in a prescribed
manner. A "business combination" includes some mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to some exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within the prior three years
did own, 15% or more of the corporation's voting stock.
Market Information
Prior to this offering, there has been no public trading market for our
common stock. The shares of GreenMountain.com will be included for quotation in
the Nasdaq National Market under the symbol "GMTN."
Transfer Agent
Our registrar and transfer agent for our common stock is Harris Trust and
Savings Bank.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, 37,546,500 shares of common stock will be outstanding,
assuming the exchange of each common unit of the limited liability company
outstanding at the time of our conversion from a limited liability company into
a corporation for three shares of common stock. See "Capitalization." Of these
shares, the 12,000,000 shares sold in this offering will be freely tradeable
without restriction under the Securities Act except for any shares purchased by
"affiliates" of GreenMountain.com as defined in Rule 144 under the Securities
Act. The remaining 25,546,500 shares are "restricted securities" within the
meaning of Rule 144 under the Securities Act. The restricted securities
generally may not be sold unless they are registered under the Securities Act
or are sold pursuant to an exemption from registration, such as the exemption
provided by Rule 144 under the Securities Act. If the underwriters exercise
their over-allotment option in full, the number of shares of common stock
outstanding after this offering would increase to 39,346,500 and, of those
shares, 13,800,000 shares would be freely tradeable and 25,546,500 would be
restricted securities as described above. Any shares of common stock issued in
connection with the arrangements described under "Business--Our Web Site" above
will also be restricted shares.
All of our officers, directors and stockholders entered into lock-up
agreements under which they have agreed not to offer or sell any shares of
common stock for a period of 180 days after the date of this prospectus without
the prior written consent of Prudential Securities, on behalf of the
underwriters. See "Underwriting." Prudential Securities may, at any time and
without notice, waive any of the terms of these lock-up agreements specified in
the underwriting agreement. Following the lock-up period, these shares will not
be eligible for sale in the public market without registration under the
Securities Act unless such sales meet the applicable conditions and
restrictions of Rule 144 as described below.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, any person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for a
period of at least one year is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of:
(1) 1% of the then-outstanding shares of common stock; and
(2) the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of
such sale on Form 144 is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are also subject to provisions relating to notice and
manner of sale and the availability of current public information about us. In
addition, a person (or persons whose shares are aggregated) who has not been an
affiliate of us at any time during the 90 days immediately preceding a sale,
and who has beneficially owned the shares for at least two years, would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitation and other conditions described above. While the foregoing discussion
is intended to summarize the material provisions of Rule 144, it may not
describe all of the applicable provisions of Rule 144, and, accordingly, you
are encouraged to consult the full text of that Rule.
In addition, our employees, directors, officers, advisors or consultants who
were issued shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, which permit non-
affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permit affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after the date of this prospectus.
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<PAGE>
As soon as practicable following the closing of this offering, we intend to
file one or more registration statements under the Securities Act to register
9,386,625 shares of common stock issuable upon the exercise of outstanding
stock options or reserved for issuance under our 1999 Stock Option Plan and
150,000 shares of common stock reserved for issuance under our 1999 Director
Stock Award Plan. See "Management--Director Compensation" and "--Stock Option
Agreements and Plans." After the effective date of such registration
statements, when issued these shares will be available for sale in the open
market subject to the lock-up agreements described above and, for our
affiliates, to the conditions and restrictions of Rule 144.
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<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below, for whom Prudential Securities Incorporated, BancBoston Robertson
Stephens Inc., BT Alex. Brown Incorporated, Volpe Brown Whelan & Company, LLC,
FAC/Equities, a division of First Albany Corporation, First Union Capital
Markets Corp., The Robinson-Humphrey Company and E*OFFERING Corp. are acting as
representatives. We are obligated to sell, and the underwriters are obligated
to purchase, all of the shares of the common stock offered on the cover page of
this prospectus, if any are purchased. Subject to conditions set forth in the
underwriting agreement, each underwriter has severally agreed to purchase from
us the number of shares of common stock set forth below opposite its name:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ----------
<S> <C>
Prudential Securities Incorporated...................................
BancBoston Robertson Stephens Inc. ..................................
BT Alex. Brown Incorporated..........................................
Volpe Brown Whelan & Company, LLC....................................
First Albany Corporation.............................................
First Union Capital Markets Corp.....................................
The Robinson-Humphrey Company........................................
E*OFFERING Corp......................................................
----------
Total.............................................................. 12,000,000
==========
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, an over-allotment option to purchase up
to 1,800,000 additional shares from us. If any of the additional shares are
purchased, the underwriters will severally purchase the additional shares in
the same proportion as set forth above.
The representatives of the underwriters have advised us that the shares will
be offered to the public at the public offering price set forth on the cover
page of this prospectus. The underwriters may allow to selected dealers a
commission not in excess of $ per share and those dealers may reallow a
commission not in excess of $ per share to other dealers. After the shares are
released for sale to the public, the public offering price, the concession to
selected dealers and the reallowance to other dealers may be changed by the
underwriters. The representatives have informed us that the underwriters do not
intend to sell shares to any investor who has granted them discretionary
authority.
We have agreed to pay to the underwriters the following fees, assuming both
no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares:
<TABLE>
<CAPTION>
Total Fees
-------------------------------------------
Fee Without Exercise of Full Exercise of
Per Share Over-Allotment Option Over-Allotment Option
--------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by
GreenMountain.com...... $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $3,175,000 in
expenses for this offering. We have agreed to indemnify the underwriters
against some liabilities, including liabilities under the Securities Act or
contribute to payments that the underwriters may be required to make in respect
of these liabilities.
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<PAGE>
All of our officers, directors and stockholders have entered into lock-up
agreements pursuant to which we and they have agreed not to offer or sell any
shares of common stock or securities convertible into or exchangeable or
exercisable for shares of common stock for a period of 180 days from the date
of this prospectus, subject to limited exceptions for option grants and
exercises, without the prior consent of Prudential Securities. Prudential
Securities may, at any time and without notice, waive the terms of these lock-
up agreements specified in the underwriting agreement.
Prior to this offering, there has been no public market for our common
stock. The public offering price, negotiated between the representatives and
us, is based upon factors such as our financial and operating history and
conditions, our prospects, the prospects of our industry and prevailing market
conditions.
Prudential Securities, representing the underwriters, may engage in the
following activities in accordance with applicable securities rules:
.Over-allotments involving sales in excess of the offering size, creating a
short position. Prudential Securities may elect to reduce this short
position by exercising some or all of the over-allotment option.
.Stabilizing and short covering: stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in the
open market may also reduce the short position. These activities may cause
the price of the shares to be higher than would otherwise exist in the
open market.
.Penalty bids permit the representatives to reclaim commissions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
Such activities, which may be commenced and discontinued at any time, may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
We have asked the underwriters to reserve shares for sale at the same
offering price directly to our customers, employees, officers, directors and
other business affiliates or related third parties. The number of shares
available for sale to the general public in the offering will be reduced to the
extent such persons purchase the reserved shares.
We have engaged Prudential Securities to act as our financial advisor in
connection with various business and strategic matters, in consideration for a
fee of 0.625% of the gross proceeds received by us in this offering.
E*OFFERING Corp. is making a prospectus in electronic format available on
its Internet Web site. Other than the prospectus in electronic format, the
information on such Web site is not part of this prospectus or the registration
statement of which this prospectus forms a part and has not been approved
and/or endorsed by GreenMountain.com or any underwriter in such capacity and
should not be relied on by prospective investors.
LEGAL MATTERS
The validity of the common stock under Delaware law will be passed upon for
us by Jones, Day, Reavis & Pogue, Dallas, Texas. Additional legal matters in
connection with the offering will be passed upon for the underwriters by Cooley
Godward LLP, San Diego, California.
EXPERTS
The financial statements and schedules of GreenMountain.com as of December
31, 1998, included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
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<PAGE>
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the common stock we are offering by this prospectus.
This prospectus does not include all of the information contained in the
registration statement. You should refer to the registration statement and its
exhibits for additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other documents, the
references are intended to set forth the material information regarding these
contracts agreements or other documents. These references, however, are not
necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract, agreement or other
document. When we complete this offering, we will also be required to file
annual, quarterly and special reports, proxy statements and other information
with the Commission.
You can reach our Commission filings, including the registration statement,
over the Internet at the Commission's web site at http://www.sec.gov. You may
also read and copy any document we file with the Commission at its public
reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549; Seven
World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also
obtain copies of these documents at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the Commission at 1-800-SEC-0330 for further information on
the operation of the public reference facilities. Our Commission filings are
also expected to be available at the office of the Nasdaq National Market. For
further information on obtaining copies of our public filings at the Nasdaq
National Market, you should call (212) 656-5060.
We have applied for registration of the following marks used in this
prospectus: Choose wisely. It's a small planet.SM, EcoSmartSM, Enviro BlendSM,
g*commerceSM, GreenMountain.comSM, Green Mountain EnergySM, Green Mountain
Energy ResourcesSM, Green Mountain SolarSM, Nature's ChoiceSM, 100% Renewable
Power 2.0SM, Wind for the FutureSM and Wind for the Future 2.0SM. All other
trademarks, trade names or service marks appearing in this prospectus belong to
their respective holders.
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It's a small planet.(SM)
<PAGE>
GREENMOUNTAIN.COM COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999
(Unaudited).............................................................. F-3
Statements of Operations for the Period from Inception (February 26, 1997)
through December 31, 1997 and for the Year Ended December 31, 1998
and for the Three Months Ended March 31, 1998 and 1999 (Unaudited)....... F-4
Statements of Stockholders' Equity for the Period from Inception (February
26, 1997)
through December 31, 1997, for the Year Ended December 31, 1998
and for the Three Months Ended March 31, 1999 (Unaudited)................ F-5
Statements of Cash Flows for the Period from Inception (February 26, 1997)
through December 31, 1997 and for the Year Ended December 31, 1998
and for the Three Months Ended March 31, 1998 and 1999 (Unaudited)....... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Public Accountants
To the Stockholders of
GreenMountain.com Company:
We have audited the accompanying balance sheets of GreenMountain.com Company
(a Delaware corporation) as of December 31, 1997 and 1998, and related
statements of operations, stockholders' equity and cash flows for the period
from inception (February 26, 1997) through December 31, 1997 and for the year
ended December 31, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides 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 GreenMountain.com Company
as of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity and cash flows for the period from inception (February 26,
1997) through December 31, 1997 and for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
June 18, 1999 (except with respect to the matter discussed in Note 13, as to
which the date is June 23, 1999)
F-2
<PAGE>
GreenMountain.com Company
Balance Sheets
<TABLE>
<CAPTION>
December 31,
-------------------------- March 31,
1997 1998 1999
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Assets
Cash.................................. $ 1,933,403 $ 5,653,854 $20,475,503
Restricted Cash (Note 2).............. -- 2,920,407 2,513,247
Accounts Receivable (net of allowance
of $34,956 and $159,454 at December
31, 1998 and March 31, 1999
(unaudited), respectively) (Note 8).. -- 434,585 2,004,678
Unbilled Accounts Receivable (Note
2)................................... -- 235,732 1,116,578
Accounts Receivable--Related Party
(Note 6)............................. 16,457 23,915 66,504
Prepaid Expenses and Other Current
Assets............................... 636,232 422,268 990,552
------------ ------------ -----------
Total current assets.............. 2,586,092 9,690,761 27,167,062
------------ ------------ -----------
Property and Equipment, net of
depreciation (Notes 2 and 3)......... 1,268,708 1,367,360 1,340,450
Other Assets (Note 2)................. 328,565 352,600 1,242,420
------------ ------------ -----------
Total assets...................... $ 4,183,365 $ 11,410,721 $29,749,932
============ ============ ===========
Liabilities and Stockholders' Equity
Accounts Payable...................... $ 1,018,903 $ 4,270,946 $ 4,287,022
Accrued Expenses (Note 7)............. 1,426,476 7,688,254 8,025,628
------------ ------------ -----------
Total liabilities................. 2,445,379 11,959,200 12,312,650
Commitments and Contingencies (Notes 5
and 13)
Stockholders' Equity:
Preferred stock ($0.01 par value;
50,000,000 authorized and 0 issued
and outstanding at December 31,
1997 and 1998 and March 31, 1999
(unaudited))....................... -- -- --
Common stock ($0.01 par value;
150,000,000 authorized and 914,220,
18,000,000 and 25,546,500
outstanding at December 31, 1997
and 1998 and March 31, 1999
(unaudited), respectively)......... 9,142 180,000 255,465
Additional paid-in capital.......... 15,590,858 59,172,600 103,621,756
Notes receivable from stockholders.. -- -- (5,108,250)
Deferred compensation............... -- -- (1,635,920)
Accumulated deficit................. (13,862,014) (59,901,079) (79,695,769)
------------ ------------ -----------
Total stockholders' equity........ 1,737,986 (548,479) 17,437,282
------------ ------------ -----------
Total liabilities and
stockholders' equity............. $ 4,183,365 $ 11,410,721 $29,749,932
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GreenMountain.com Company
Statements of Operations
<TABLE>
<CAPTION>
Period from
Inception Three Months Ended
(February 26, 1997) Year Ended March 31,
through December 31, -------------------------
December 31, 1997 1998 1998 1999
------------------- ------------ ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues................ $ -- $ 1,530,496 $ -- $ 4,149,941
Cost of Sales........... -- 1,097,379 -- 3,096,161
Operating Expenses:
Customer and regional
operations........... 982,085 4,834,379 652,244 2,269,841
Sales and marketing... 4,336,623 33,010,308 4,065,064 12,374,808
General and
administrative....... 1,741,892 4,225,716 1,011,582 3,928,378
Technology and
development.......... 2,048,191 2,918,056 833,125 2,267,880
Depreciation and
amortization......... 90,597 767,605 168,957 222,253
Organizational costs.. 4,705,713 709,068 -- --
------------ ------------ ----------- ------------
Total operating
expenses........... 13,905,101 46,465,132 6,730,972 21,063,160
------------ ------------ ----------- ------------
Operating loss...... (13,905,101) (46,032,015) (6,730,972) (20,009,380)
Interest income
(expense), net......... 43,087 (7,050) 23,583 214,690
------------ ------------ ----------- ------------
Net loss............ $(13,862,014) $(46,039,065) $(6,707,389) $(19,794,690)
============ ============ =========== ============
Basic and diluted loss
per common share....... $ (16.70) $ (6.33) $ (3.53) $ (0.89)
============ ============ =========== ============
Basic and diluted
weighted average common
shares outstanding..... 829,833 7,271,554 1,898,567 22,326,697
============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GreenMountain.com Company
Statements of Stockholders' Equity
for the Period from Inception (February 26, 1997) through December 31, 1997,
for the Year Ended December 31, 1998 and for the Three Months Ended March 31,
1999 (Unaudited)
<TABLE>
<CAPTION>
Notes
Common Shares Additional Receivable Total
-------------------- Paid-In from Deferred Accumulated Stockholders'
Shares Amount Capital Stockholders Compensation Deficit Equity
---------- -------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
on August 6, 1997...... 782,766 $ 7,827 $ 11,992,173 $ -- $ -- $ -- $ 12,000,000
Return of capital on
August 7, 1997........ -- -- (4,000,000) -- -- -- (4,000,000)
Issuance of common
stock................. 131,454 1,315 7,598,685 -- -- -- 7,600,000
Losses accumulated
during the development
stage................. -- -- -- -- -- (13,862,014) (13,862,014)
---------- -------- ------------ ----------- ----------- ------------- ------------
Balance at December 31,
1997................... 914,220 9,142 15,590,858 -- -- (13,862,014) 1,737,986
Issuance of common
stock................. 17,280,000 172,800 44,227,200 -- -- -- 44,400,000
Repurchase/retirement
of shares............. (194,220) (1,942) (645,458) -- -- -- (647,400)
Net loss............... -- -- -- -- -- (46,039,065) (46,039,065)
---------- -------- ------------ ----------- ----------- ------------- ------------
Balance at December 31,
1998................... 18,000,000 180,000 59,172,600 -- -- (59,901,079) (548,479)
Issuance of common
stock................. 7,546,500 75,465 40,234,535 -- -- -- 40,310,000
Notes receivable issued
to shareholders....... -- -- -- (5,108,250) -- -- (5,108,250)
Deferred compensation.. -- -- 4,454,700 -- (1,635,920) -- 2,818,780
Costs associated with
the issuance of
common stock.......... -- -- (240,079) -- -- -- (240,079)
Net loss............... -- -- -- -- -- (19,794,690) (19,794,690)
---------- -------- ------------ ----------- ----------- ------------- ------------
Balance at March 31,
1999................... 25,546,500 $255,465 $103,621,756 $(5,108,250) $(1,635,920) $ (79,695,769) $17,437,282
========== ======== ============ =========== =========== ============= ============
</TABLE>
The accompanying notes are an integral part to these financial statements.
F-5
<PAGE>
GreenMountain.com Company
Statements of Cash Flows
<TABLE>
<CAPTION>
for the Period
from Inception Three Months Ended
(February 26, 1997) Year Ended March 31,
through December 31, -------------------------
December 31, 1997 1998 1998 1999
------------------- ------------ ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net loss.............. $(13,862,014) $(46,039,065) $(6,707,389) $(19,794,690)
Adjustments to
reconcile net loss to
net cash used in
operating
activities--
Depreciation and
amortization....... 90,597 767,605 168,957 222,253
Provision for
doubtful accounts.. -- 34,956 -- 124,498
Loss on disposals of
property and
equipment.......... -- 17,225 -- --
Write-off of
organization
costs.............. -- 269,892 -- --
Deferred
compensation
charge............. -- -- -- 2,748,900
Other............... -- -- -- 69,880
Changes in assets
and liabilities--
Restricted cash... -- (2,920,407) -- 407,160
Accounts
receivable....... (16,457) (476,999) (13,070) (1,737,180)
Unbilled accounts
receivable....... -- (235,732) -- (880,846)
Prepaid expenses
and other current
assets........... (636,232) 213,964 547,859 (568,284)
Organization
costs............ (352,034) -- -- --
Accounts payable.. 1,018,903 3,252,043 (502,612) 16,076
Accrued expenses.. 1,426,476 5,261,778 1,392,315 337,374
------------ ------------ ----------- ------------
Net cash used in
operating
activities..... (12,330,761) (39,854,740) (5,113,940) (19,054,859)
------------ ------------ ----------- ------------
Cash Flows from
Investing Activities:
Purchases of property
and equipment........ (1,335,836) (824,809) (98,094) (182,743)
------------ ------------ ----------- ------------
Net cash used in
investing
activities..... (1,335,836) (824,809) (98,094) (182,743)
------------ ------------ ----------- ------------
Cash Flows from
Financing Activities:
Proceeds of short-term
borrowing............ -- 10,000,000 -- --
Payment of short-term
borrowing............ -- (10,000,000) -- --
Proceeds from issuance
of stock............. 19,600,000 44,400,000 5,900,000 35,201,750
Return of capital..... (4,000,000) -- -- --
Equity financing
costs................ -- -- -- (240,079)
Deferred financing
costs................ -- -- -- (902,420)
------------ ------------ ----------- ------------
Net cash
provided by
financing
activities..... 15,600,000 44,400,000 5,900,000 34,059,251
------------ ------------ ----------- ------------
Net Increase in Cash.... 1,933,403 3,720,451 687,966 14,821,649
Cash, beginning of
period................. -- 1,933,403 1,933,403 5,653,854
------------ ------------ ----------- ------------
Cash, end of period..... $ 1,933,403 $ 5,653,854 $ 2,621,369 20,475,503
============ ============ =========== ============
Supplemental Disclosure:
Interest paid......... $ -- $ -- $ -- 167,083
============ ============ =========== ============
Taxes paid............ $ -- $ 950 $ -- --
============ ============ =========== ============
Supplemental Disclosure
of Noncash Items:
Repurchase of shares
(see Note 1)......... $ -- $ 647,400 $ -- --
============ ============ =========== ============
Purchase of intangible
assets (Note 1)...... $ -- $ 352,600 $ -- --
============ ============ =========== ============
Stock sales financed
with notes receivable
(Note 11)............ -- -- -- $ 5,108,250
============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part to these financial statements.
F-6
<PAGE>
GreenMountain.com Company
Notes to Financial Statements
(Information at March 31, 1999 and for the
Three Months Ended March 31, 1998 and 1999 is Unaudited)
(1) Organization and Business
GreenMountain.com Company, formerly known as Green Mountain Energy Resources
L.L.C., is a Delaware corporation, originally formed as a limited liability
company. As further discussed in Note 12, Green Mountain Energy Resources
L.L.C. reorganized into a corporation in 1999.
On August 6, 1997, a subsidiary of Green Mountain Power Corporation and
Green Funding I, L.L.C., an investment vehicle controlled by the Wyly family,
negotiated and entered into a limited liability company agreement relating to
the formation of Green Mountain Energy Resources L.L.C. Green Mountain Energy
Resources L.L.C. was formed to become a national retail marketer of electricity
produced from renewable and other environmentally preferable sources to
residential customers. Under the limited liability company agreement:
. A subsidiary of Green Mountain Power Corporation contributed certain
service marks, costs incurred by Green Mountain Power Corporation prior to
formation of the limited liability company for research related to
evaluating the viability of a nationally-marketed, premium-priced green
electricity product, including marketing studies and analyses, and its
rights under agreements with several third-party service providers, in
exchange for a 33% equity interest, after the effect of the return of
capital discussed below, in the limited liability company;
. Green Funding I contributed $8,000,000 and committed to contribute an
additional $22,000,000 over time, in exchange for a 67% equity interest in
the limited liability company; and
. Immediately following the initial contribution by Green Funding I, the
subsidiary of Green Mountain Power Corporation received a distribution
from the limited liability company of $4,000,000, representing
reimbursement for market studies and analyses and other development costs
incurred by Green Mountain Power Corporation prior to formation of the
limited liability company based on a provision in the limited liability
company agreement.
The limited liability company agreement also contained provisions relating
to the allocation of profits and losses, the management of the limited
liability company and restrictions on transfer and registration rights.
Green Mountain Energy Resources L.L.C. began active operations on August 6,
1997 under the terms of an operating agreement, dated August 6, 1997. On
September 29, 1997, Green Funding I committed an additional $10,000,000 to the
limited liability company. Green Mountain Power Corporation elected not to
contribute additional equity, resulting in an increase in Green Funding I's
equity interest to 73%. On November 20, 1998, Green Funding I committed an
additional $20,000,000 to the limited liability company. Green Mountain Power
Corporation again elected not to contribute additional equity, resulting in an
increase in Green Funding I's equity interest to 99%.
On December 23, 1998, Green Mountain Energy Resources L.L.C. negotiated and
entered into an agreement with Green Mountain Power Corporation to buy back its
equity interests in the limited liability company and to obtain a non-compete
agreement, certain rights to the Green Mountain name and certain mutual
releases for $1,000,000. This agreement enabled the limited liability company
to eliminate its ties to a traditional, regulated utility that had elected not
to contribute additional equity to the limited liability company. In addition,
this agreement contained favorable provisions relating to non-competition and
the use of the Green Mountain name. The payments were made in two installments
on January 4, 1999 and February 16, 1999. The limited liability company
allocated $647,400 to the repurchased equity interest ($3.33 a share) and
$352,600 to the non-compete agreement, certain rights to the Green Mountain
name and certain mutual releases obtained.
F-7
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(Information at March 31, 1998 and for the
Three Months Ended March 31, 1998 and 1999 is Unaudited)
This allocation was based on the management committee's determination of the
fair value of the equity interest and other intangible assets obtained given an
anticipated offering in early January and February of 1999 at $3.33 per share.
The limited liability company losses for the period and year ended
December 31, 1997 and 1998 were allocated 100% to Green Funding I under the
operating agreement. Accordingly, the Company has no tax loss carry forwards
related to losses during those periods. The operating agreement was amended
January 4, 1999 to allocate losses, first to members other than Green Funding
I, to the extent of those members' capital contributions and, thereafter, to
members, including Green Funding I, in proportion to their respective ownership
interests.
GreenMountain.com has generated approximately $1.5 million in residential
electric revenue sales in California during 1998 and $4.1 million in California
and Pennsylvania during the three months ended March 31, 1999. The retail
energy market is at an early stage of development, as only a few states have
deregulated sales of electricity on a statewide basis as of December 1998.
GreenMountain.com began serving customers in Pennsylvania on January 1, 1999.
As of December 31, 1998 and March 31, 1999, GreenMountain.com had accumulated
deficits of $59,901,079 and $79,695,769, respectively. GreenMountain.com is
seeking additional investors, through an initial public offering, to fund its
planned expansion of its existing electricity business into new deregulated
markets and to broaden its green product offerings. The implementation of
GreenMountain.com's business plan is dependent on this offering. There can be
no assurance that such additional financing will be available. If
GreenMountain.com is unable to obtain financing through an initial public
offering, GreenMountain.com will curtail its current growth plans and
GreenMountain.com believes its existing cash resources, together with financing
available under an agreement with Green Funding I, in an amount up to $22
million, will be sufficient to fund its operations at least through 1999. Any
advances under the agreement will bear interest at 6% per annum. The agreement
provides that accrued and unpaid interest will be added to the principal on
each June 30 and December 31. Principal, together with accrued and unpaid
interest, will be payable on April 23, 2001. This agreement terminates upon an
initial public offering and any advances made under the agreement become due
and payable. GreenMountain.com obtained an advance of $5.0 million from Green
Funding I to permit GreenMountain.com to meet its working capital requirements.
GreenMountain.com will use a portion of the net proceeds to repay in full this
advance and any similar advances that GreenMountain.com may obtain under its
funding agreement with Green Funding I prior to the closing of this offering.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
Financial statements of a development stage company are prepared and
presented in the same manner as those of operating enterprises.
GreenMountain.com was considered a development stage company as of and for the
period from inception through December 31, 1997.
(b) Reclassifications
Certain prior year amounts have been reclassified to be consistent with the
current presentation.
(c) Restricted Cash
Certain of GreenMountain.com's power supply vendors and state regulators
require letters of credit to ensure fulfillment of the Company's commitments.
Associated amounts have been classified as restricted cash on the accompanying
balance sheet.
F-8
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(Information at March 31, 1999 and for the
Three Months Ended March 31, 1998 and 1999 is Unaudited)
(d) Organization Costs
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) No. 98-5, Reporting on the Costs of
Start-Up Activities, which requires that all start-up costs, including
organization costs, should be expensed as incurred. The new standard is
effective for fiscal years beginning after December 15, 1998, with early
application encouraged. In the fourth quarter of 1998 GreenMountain.com wrote
off the remaining unamortized balance of organization costs, amounting to
$269,892, or $0.04 per share, in accordance with the new pronouncement. This
amount is included in development and transaction costs in the accompanying
Statements of Operations.
(e) Property and Equipment
Property and equipment are stated at cost. GreenMountain.com provides for
depreciation on property and equipment on the straight-line basis over their
estimated useful lives as follows:
<TABLE>
<S> <C>
Computer hardware.............................................. 2 years
Computer software.............................................. 1-5 years
Furniture and fixtures......................................... 5-7 years
</TABLE>
(f) Other Assets
Other assets include a non-competition agreement being amortized over seven
years and deferred costs related to GreenMountain.com's planned initial public
offering. These deferred costs will be reclassified to additional paid-in
capital upon the closing of the equity offering.
(g) Federal Income Taxes
Federal income taxes have not been recorded in the accompanying financial
statements because such taxes, if any, were the responsibility of the
stockholders prior to the reorganization described in Note 12.
(h) Impairment of Long-Lived Assets
GreenMountain.com follows SFAS No. 121, Accounting for Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of. SFAS No. 121 requires that long-lived
assets be reviewed for impairment by comparing the fair value of the assets
with their carrying amount. Any write-downs are to be treated as permanent
reductions in the carrying amount of the assets. Accordingly, GreenMountain.com
evaluates the possible impairment of long-lived assets at each reporting period
based on the undiscounted projected cash flows of the related asset. Should
there be an impairment, the cash flow estimates that will be used will contain
management's best estimates, using appropriate and customary assumptions and
projections at the time. To date GreenMountain.com does not believe that an
impairment exists.
(i) Use of Estimates in the Preparation of Financial Statements
The presentation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Operating results in the future could vary from the amounts
derived from management's estimates and assumptions.
F-9
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(Information at March 31, 1999 and for the
Three Months Ended March 31, 1998 and 1999 is Unaudited)
(j) Fair Value of Financial Instruments
GreenMountain.com's financial instruments consist primarily of cash,
accounts receivable, unbilled accounts receivable and accounts payable. The
carrying amounts of these financial instruments as of December 31, 1997 and
1998 and March 31, 1999 approximate their fair values due to their short-term
nature.
(k) Revenue Recognition and Unbilled Accounts Receivable
Customers are billed for their use of electricity on a cycle basis
throughout the month. To reflect revenues in the proper period, the estimated
amount of unbilled sales revenue related to customer electricity usage is
recorded each month.
(l) Earnings per Share
The dilutive effect of potential common shares, consisting of outstanding
stock options and warrants is determined using the treasury method in
accordance with SFAS No. 128, Earnings per Share, which established standards
for computing and presenting earnings per share and which applies to entities
with publicly held common stock or potential common stock. In accordance with
SEC Staff Accounting Bulletin (SAB) No. 98, GreenMountain.com has determined
that there were no nominal issuances of common stock or potential common stock
in the period prior to GreenMountain.com's planned initial public offering.
Diluted weighted average shares outstanding for 1997 and 1998 exclude the
potential common shares from warrants and stock options because to do so would
have been antidilutive. The potential common shares excluded as of December 31,
1997 and 1998, and March 31, 1998 and 1999 related to outstanding warrants and
stock options were 111,300, 103,401, 111,960 and 6,032,010 respectively.
(m) Unaudited Interim Information
The financial information as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 is unaudited. In the opinion of management, such
information contains all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the results of such period.
(n) Employee Benefit Plan
GreenMountain.com has a defined contribution plan in which GreenMountain.com
contributes 2% of each employee's base salary up to the social security wage
base and 4% of such base above the social security wage base up to $160,000.
Additionally, GreenMountain.com matches 50% of each employee's contribution up
to the employee's first 6% contribution. Both GreenMountain.com and employee
contributions vest immediately. The charges included in the accompanying
Statements of Operations under this plan for the year ended December 31, 1998
and the period from inception through December 31, 1997 are $153,719 and
$20,821, respectively, and for the three months ended March 31, 1999 and 1998
are $46,354 and $34,084, respectively.
(o) Advertising Costs
Advertising costs are expensed as incurred as such efforts historically have
not met the direct-response criteria required for capitalization.
GreenMountain.com advertising to date has related to (1) building brand
awareness, including traditional media advertising such as television, radio,
print and billboards and sponsorship of special events and promotions and (2)
direct marketing, including direct mail, affinity programs, internet and
inbound and outbound telemarketing. Total advertising costs for the period from
inception, February 26, 1997 through December 31, 1997, for the year ended
December 31, 1998 and for the three
F-10
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(Information at March 31, 1999 and for the
Three Months Ended March 31, 1998 and 1999 is Unaudited)
months ended March 31, 1998 and 1999, were $4.3 million, $33.0 million, $4.1
million and $12.4 million, respectively. As new advertising agreements are
entered into, such as the Yahoo! Inc. agreement which commences in May 1999,
such costs could have long-term value and result in capitalization and
amortization over the period benefited. See Note (5)(d)-Commitments and
Contingencies for a discussion of GreenMountain.com's Marketing Services
Agreement with Cullinan, Note (5)(f) for a discussion of its contract with
Yahoo!, Note (5)(g) for a discussion of its contract for marketing strategy
with Copernicus and Note (5)(h) for a discussion of its contract with Strategic
Interactive Group.
(3) Property and Equipment
Property and equipment consisted of the following as of:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998 March 31, 1999
---------- ---------- --------------
<S> <C> <C> <C>
Computer hardware.......................... $ 809,920 $1,139,923 $1,215,103
Computer software.......................... 295,290 426,278 431,086
Furniture and fixtures..................... 230,626 567,685 670,440
---------- ---------- ----------
1,335,836 2,133,886 2,316,629
Less--Accumulated depreciation............. 67,128 766,526 976,179
---------- ---------- ----------
$1,268,708 $1,367,360 $1,340,450
========== ========== ==========
</TABLE>
(4) Options and Warrants
(a) 1997 and 1998 Options
During 1997 and 1998, GreenMountain.com granted options to employees,
officers, consultants and advisors at market value. The options expire on the
fifth anniversary of the grant date.
Option activity is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Granted, August 6, 1997...................................... 92,658 $75.30
Granted...................................................... 6,702 $75.40
------ ------
Outstanding, December 31, 1997............................... 99,360 75.31
Granted.................................................... 1,662 75.40
Forfeited.................................................. (9,561) 75.40
------ ------
Outstanding, December 31, 1998............................... 91,461 $75.30
Granted.................................................... -- --
Forfeited.................................................. (1,791) 75.40
------ ------
Outstanding, March 31, 1999.................................. 89,670 $75.30
====== ======
</TABLE>
(b) 1999 Option Plan
During the first quarter of 1999, GreenMountain.com adopted an option plan
whereby options may be granted to employees, officers, directors, consultants
and advisors at market value. These options would vest
F-11
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(Information at March 31, 1999 and for the
Three Months Ended March 31, 1998 and 1999 is Unaudited)
over four years and expire fifty months following the anniversary of the grant
date. The authorized number of options available for grant would remain fixed
in an amount equal to an ownership interest representing approximately 20% of
GreenMountain.com.
Option activity is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding, December 31, 1998............................... -- --
Granted.................................................... 5,930,400 $3.93
Forfeited.................................................. -- --
--------- -----
Outstanding, March 31, 1999.................................. 5,930,400 $3.93
========= =====
</TABLE>
(c) Warrants
During 1997, GreenMountain.com issued warrants to its consultants and
advisors for 11,940 shares at fair market value. The warrants vested
immediately and expire on the fifth anniversary date of the grant.
(d) Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 requires the measurement of the fair value of stock
options to be included in the statements of income or disclosed in the notes to
financial statements. GreenMountain.com has determined that it will continue to
account for stock-based compensation for employees under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and elect the
disclosure-only alternative under SFAS No. 123.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants during the applicable period:
<TABLE>
<CAPTION>
Three Months
Ended March
1997 1998 31, 1999
---------- -------------- -------------
<S> <C> <C> <C>
Volatility.............................. 0% 0% 0%
Risk free rate of return................ 5.8% to 6% 5.46% to 5.65% 4.58% to 5.1%
Dividend yield.......................... -- -- --
Expected life in years.................. 2 2 3.5
</TABLE>
The weighted average fair value per share of options granted during 1997,
1998 and 1999 was $16.66, $7.92 and $0.95, respectively.
The following information is presented as of March 31, 1999 for two
identified groups of options, one group granted in 1997 and 1998 and the other
group granted in 1999.
<TABLE>
<CAPTION>
1997 and
1998 1999
Grants Grants
--------- ---------
<S> <C> <C>
Number of options outstanding............................. 89,670 5,930,400
Weighted-average exercise price........................... $75.30 $3.93
Weighted-average remaining contractual life............... 41 months 48 months
Number of options currently exercisable................... 40,111 1,366,080
Weighted-average exercise price of options currently
exercisable.............................................. $75.31 $3.85
</TABLE>
F-12
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(Information at March 31, 1999 and for the
Three Months Ended March 31, 1998 and 1999 is Unaudited)
The following information is presented as of December 31, 1997, March 31,
1998 and December 31, 1998, respectively, for the group of options granted in
1997 and 1998.
<TABLE>
<CAPTION>
December March December
31, 1997 31, 1998 31, 1998
--------- --------- ---------
<S> <C> <C> <C>
Number of options outstanding................... 99,360 100,020 91,461
Weighted-average exercise price................. $75.31 $75.31 $75.30
Weighted-average remaining contractual life..... 56 months 53 months 44 months
Number of options currently exercisable......... 19,868 20,000 39,966
Weighted-average exercise price of options
currently exercisable.......................... $75.31 $75.31 $75.31
</TABLE>
Had compensation cost for GreenMountain.com's plans been determined
consistent with SFAS No. 123, GreenMountain.com's net income and earnings per
share of common stock would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
Period from Inception
(February 26, 1997) Year Ended Three Months
through December 31, December 31, Ended March 31,
1997 1998 1999
--------------------- ------------ ---------------
<S> <C> <C> <C> <C>
Net Income.............. As reported $(13,862,014) $(46,039,065) $(19,794,690)
Pro Forma (13,971,841) (46,330,132) (20,927,779)
Earnings per shares of
Common Stock........... As reported $(16.70) $(6.33) $(0.89)
Pro Forma $(16.84) $(6.37) $(0.94)
</TABLE>
GreenMountain.com recorded a charge to compensation expense of $2,681,530
and deferred compensation of $1,635,920 during the first quarter of 1999 for
the difference between the purchase price and exercise price of shares and
options issued and their fair market value. Compensation expense for purchased
shares is recognized at the time shares are purchased and expense for options
is recognized over the periods options vest. GreenMountain.com recorded a
charge to expense of $42,430 related to the fair market value of options issued
to nonemployees, as calculated using the Black-Scholes option-pricing model.
The total number of shares of common stock that will be available for
issuance under the 1999 Stock Option Plan is 9,304,713. In connection with
GreenMountain.com's expected public offering, 3,012,066 shares are available
for issuance upon the exercise of options awarded under its 1999 Stock Option
Plan in the future, including an option to purchase 462,500 shares of common
stock expected to be granted to Sam Wyly, an option to purchase 360,000 shares
of common stock expected to be granted to Dennis Crumpler, an option to
purchase 675,000 shares of common stock expected to be granted to Dennis Kelly,
and options to purchase an aggregate of 449,000 shares of common stock expected
to be granted to a new director nominee, nine new employees and four new
advisors, in each case in connection with this offering.
(5) Commitments and Contingencies
(a) Power Supply Agreements
For the Pennsylvania market, GreenMountain.com has entered into three
agreements with major wholesale suppliers for electricity supply to serve the
requirements of GreenMountain.com's customers. Under all of the agreements, the
suppliers will provide electricity for a period of one year that matches the
aggregate customer requirements that are assigned to them. For two of the
agreements, either GreenMountain.com or the supplier can discontinue the
assignment of additional customers upon three months' notice. The wholesale
price is fixed for the term of the agreements.
F-13
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(Information at March 31, 1999 and for the
Three Months Ended March 31, 1998 and 1999 is Unaudited)
For the California market, GreenMountain.com has negotiated requirements
contracts with two suppliers to supply its current product offerings in the
California market. Under both agreements, the wholesale price is based on a
fixed price spread related to the PX price of power (refers to the per kwh
wholesale electricity price in California, as determined by the California
Power Exchange) with one agreement providing for a surcharge on the Wind for
the FutureSM wind power product. One supplier provides electricity for a period
of one year for each of GreenMountain.com's customers assigned to it and either
party may discontinue the assignment of additional customers to the agreement
upon three months' notice. The other supplier provides electricity for one and
three year service periods, depending on the product being served, and can be
assigned additional customers through December 31, 1999.
GreenMountain.com's contracts with four suppliers provide for separate
letters of credit or equivalent financial assurances to satisfy credit
requirements. The amounts of the letters of credit range from fifteen days' to
two months' of receivables based on GreenMountain.com's load forecast. In
addition, GreenMountain.com has delivered to one supplier irrevocable letters
of credit in connection with the supplier's purchase and installation of three
wind power turbines. GreenMountain.com also delivered letters of credit to
regulators securing its performance as an energy service provider. Total supply
and regulatory letters of credit outstanding at December 31, 1998 and March 31,
1999 were $2,765,230 and $2,477,251, respectively, reflected on the balance
sheet as restricted cash.
(b) Outsourcing Agreement
On May 15, 1998, GreenMountain.com entered into an amended outsourcing
agreement with en . able, L.L.C. (en . able) with respect to the development
and implementation of a system that facilitates the data and communications
interface between utility distribution centers and GreenMountain.com.
GreenMountain.com has also retained en . able to provide billing and the
related customer care to residential customers at prices defined in the
contract. The agreement continues until November 1, 2002 (Initial Term), unless
terminated at an earlier date. Commencing at the start of the third contract
year, but only during the Initial Term, either party may terminate this
agreement without cause for any reason upon 270 days' prior written notice to
the other party. The contract states that prior to the end of the Initial Term
and each renewal term, the parties may mutually agree to extend this agreement
for one additional contract year. GreenMountain.com has agreed to pay monthly
service charges for call center and billing services, additional resource
charges and cost of living adjustment to compensate en . able for the volumes
processed and all of the resources used in providing the services. The monthly
charges are variable and are based on the number of billable accounts
maintained each month. GreenMountain.com has agreed to pay minimum monthly
service charges for call center service and billing services in the amount of
$112,500 based on a customer billable unit baseline of 50,000 customers.
(c) Teleservices Agreement
On January 30, 1998, GreenMountain.com entered into a contract with ICT
Group, Inc. to manage its call center and resulting databases to support
GreenMountain.com's various teleservices requirements. Either party may
terminate this agreement without cause by providing the other party with 30
business days prior written notice. Under this contract, GreenMountain.com has
fixed monthly fees of approximately $8,700, as well as actual costs associated
with service representatives' time and communication costs incurred resulting
from inbound and outbound calls.
(d) Marketing Services Agreement
On January 1, 1998, GreenMountain.com entered into a marketing services
agreement with The Cullinan Group to create, prepare and execute marketing
communications plans and projects and place advertising with respect to
retailing electricity, natural gas and related products and services. The
contract is enforceable until
F-14
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(Information at March 31, 1999 and for the
Three Months Ended March 31, 1998 and 1999 is Unaudited)
terminated by 90 days notice in writing. Under the terms of the agreement,
GreenMountain.com is required to pay a minimum monthly retainer fee of $30,000
as well as monthly advance payments in the amount of anticipated expenses less
the monthly retainer fee. Total GreenMountain.com payments expensed under this
contract in 1998 and for the three months ended March 31, 1999 were
approximately $16,228,000 and $6,511,613, respectively. Costs incurred relate
primarily to traditional media advertising such as television, radio, print and
billboards.
(e) Facility Lease Agreement
GreenMountain.com leases an office facility in Vermont under a cancelable
operating lease that expires September 30, 2002. Future minimum lease payments
required, provided GreenMountain.com does not cancel the lease, at December 31,
1998 are as follows:
<TABLE>
<S> <C>
1999............................................................. $114,675
2000............................................................. 114,675
2001............................................................. 114,675
2002............................................................. 86,006
--------
$430,031
========
</TABLE>
The lease agreement has a termination provision that enables
GreenMountain.com to terminate the lease at September 30, 1999, 2000 or 2001.
If GreenMountain.com elects to terminate the lease at any one of these dates,
GreenMountain.com is obligated to pay $33,000, $25,000, or $12,500,
respectively, as consideration for early termination.
(f) Advertising And Promotion Agreement
In March 1999, GreenMountain.com entered into an advertising and promotion
agreement with Yahoo! Inc., which provides banner advertisements and other
promotions for GreenMountain.com on the Yahoo! web sites. The total
consideration due during the one year term of the agreement is approximately
$6.0 million, commencing in May of 1999, as well as the payment of referral
fees for each new energy services account opened as a result of the Yahoo!
promotions, with a cap of $400,000 on the total amount to be paid for accounts
opened. Expenses will be recognized under this contract throughout the term of
the contract and in a manner consistent with receipt of services provided by
Yahoo!
(g) Marketing Strategy Agreement
GreenMountain.com's overall marketing strategy has been developed with the
assistance of Copernicus, The Marketing Investment Strategy Group. In March
1995, Green Mountain Power Corporation entered into a consulting agreement with
Copernicus, which was amended in March 1997. The agreement, which was assigned
to us by a subsidiary of Green Mountain Power Corporation, continues in effect
for a series of consecutive one-month terms until terminated by either party
upon 90 days' prior written notice. Under the agreement, GreenMountain.com is
required to pay a monthly retainer fee of $20,000. Total payments expensed
under this agreement for 1998 were $491,491 and for the three months ended
March 31, 1999 were $170,254.
(h) Web Site Development Contract
GreenMountain.com has established a relationship with Strategic Interactive
Group, an interactive media consulting agency and specialized Web site
developer, to assist it with enhancements to its Web site and its use
F-15
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(Information at March 31, 1999 and for the
Three Months Ended March 31, 1998 and 1999 is Unaudited)
of the Internet in its brand awareness efforts. In addition to the tools
necessary for the sale, fulfillment and customer service functions, the Web
site will offer content and community features. The agreement with Strategic
Interactive Group may be terminated by either party by giving the other party
at least 90 days prior written notice. Under the agreement, GreenMountain.com
pays for services based on actual hours worked, but not more than the agreed
budget estimate without its prior approval. GreenMountain.com also reimburses
Strategic Interactive Group for expenses incurred by it in performance of its
services to GreenMountain.com. Total payments under this agreement for 1998
were $1,191,257 and for the three months ended March 31, 1999 were $435,070.
GreenMountain.com expects to begin capitalizing costs associated with its Web
site development project in the second quarter of 1999 as it moves from the
preliminary project stage to the application development stage in accordance
with AICPA SOP No. 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use.
(6) Other Related Party Transactions
During 1998, GreenMountain.com paid Sterling Software, Inc. (an affiliate of
Sam Wyly, GreenMountain.com's Chairman) $828,611 for information technology
consulting services, and owed an additional $382,396 at December 31, 1998,
which is included in accounts payable on the balance sheet. During the three
months ended March 31, 1999, GreenMountain.com paid Sterling Software, Inc.
$576,857 for its services. GreenMountain.com has no minimum financial
commitment with regard to the agreement with Sterling Software, Inc.
GreenMountain.com has paid Green Mountain Power Corporation $470,653 and
$165,365 for electricity, facilities maintenance and other expenses paid by
Green Mountain Power Corporation on behalf of GreenMountain.com for 1997 and
1998, respectively. In addition, GreenMountain.com received $31,803 and $73,191
during 1997 and 1998, respectively, for services provided to Green Mountain
Power Corporation by GreenMountain.com's employees. As of December 31, 1998,
Green Mountain Power Corporation is no longer an affiliate of
GreenMountain.com.
Effective as of January 4, 1999, Jason Elliott, son-in-law of Sam Wyly and
brother-in-law of Evan Wyly and Lisa Wyly, completed his service as a member of
the management committee of the limited liability company and agreed to serve
as a consultant. In connection with these services, as of March 31, 1999, Mr.
Elliott has been paid $110,000 and has been granted options to purchase 5,985
shares of common stock at an exercise price of $75.20, 75,000 shares of common
stock at an exercise price of $3.33 and 75,000 shares of common stock at an
exercise price of $6.67.
(7) Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998 March 31, 1999
---------- ---------- --------------
<S> <C> <C> <C>
Accrued customer and
regional operations.... $ 78,880 $ 955,255 $1,801,524
Accrued sales and
marketing.............. 226,081 3,639,386 4,474,384
Accrued general and
administrative......... 742,074 2,899,914 1,749,720
Accrued technology and
development............ 379,441 193,699 --
---------- ---------- ----------
$1,426,476 $7,688,254 $8,025,628
========== ========== ==========
</TABLE>
F-16
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(Information at March 31, 1999 and for the
Three Months Ended March 31, 1998 and 1999 is Unaudited)
(8) Accounts Receivable
As of December 31, 1998 and March 31, 1999, GreenMountain.com is owed
$137,970 and $223,805, respectively, from the California Energy Commission
related to renewable energy credits provided to GreenMountain.com for selling
renewable energy to customers. GreenMountain.com expects to collect these
amounts in 1999.
(9) Short-Term Borrowings
GreenMountain.com borrowed a total of $10,000,000 in September and October
1998 from a financing company, which was subsequently repaid with a portion of
Green Funding I's additional $20,000,000 commitment. The interest due on such
borrowings was paid in early 1999. This loan, which bore interest at a rate of
10% per annum, was made by Security Capital, Ltd. Several entities, whose stock
is owned by irrevocable trusts of which certain members of the Wyly family are
beneficiaries, provided credit enhancement for the loan.
(10) Recent Accounting Pronouncements
The FASB recently issued SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting and displaying comprehensive income
and its components in financial statements. Comprehensive income, as defined,
includes all changes to equity (net assets) during a period from non-owner
sources. SFAS No. 130 is effective for financial statements for fiscal years
beginning after December 15, 1997. To date, GreenMountain.com has not had any
transactions that are required to be reported in comprehensive income.
The FASB recently issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. GreenMountain.com has determined that it
does not have any separately reportable business segments.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. A company may also
implement the statement as of the beginning of any fiscal quarter after
issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter).
SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to
(a) derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997 (and, at the company's election, before January 1, 1998).
This statement could increase volatility in earnings and other comprehensive
income for companies with applicable contracts. GreenMountain.com does not have
any derivative instruments at this time; however, such instruments may be
embedded in future electricity contracts.
F-17
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(Information at March 31, 1999 and for the
Three Months Ended March 31, 1998 and 1999 is Unaudited)
The AICPA issued SOP No. 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, which provides guidance on accounting
for the cost of computer software developed or obtained for internal use. SOP
No. 98-1 is effective for financial statements for fiscal years beginning after
December 15, 1998. The adoption of SOP No. 98-1 did not have a material impact
on GreenMountain.com's financial statements. GreenMountain.com anticipates that
in the second quarter of 1999 it will begin capitalizing certain costs in
accordance with SOP No. 98-1 associated with projects that enter the
development stage, including its web site development project.
(11) Subsequent Event--Private Placement Offerings
During 1999, GreenMountain.com completed two private placement offerings.
The first offering, completed in early January and early February 1999, was for
$10,000,000 from a sale of 3,000,000 shares to GreenMountain.com's employees
and certain consultants for $3.33 per share. Net proceeds included $4,891,750
of cash and $5,108,250 of promissory notes from employees and certain
consultants. GreenMountain.com recognized compensation expense of $2,072,300 in
connection with the issuance of shares. The second offering, completed in mid-
February 1999, resulted in net proceeds of $30,310,000 from a sale of 4,546,500
shares to investors for $6.67 per share. As a result of purchases during the
second offering, Maverick Capital became the beneficial owner of 2,250,000
shares for an aggregate purchase price of $15.0 million. Evan Wyly, a Vice
Chairman and a Director of GreenMountain.com, is a Managing Partner and H. Lee
S. Hobson, a GreenMountain.com Director, is a Partner of Maverick Capital. In
addition, Green Funding II, L.L.C., an investment vehicle controlled by the
Wyly family, acquired directly 1,500,000 shares for an aggregate purchase price
of $10.0 million.
(12) Subsequent Event--Reorganization
On June 18, 1999, Green Mountain Energy Resources L.L.C. merged into a newly
formed Delaware corporation, which (i) was the entity surviving the merger,
succeeding to all rights, properties and obligations of GreenMountain.com; (ii)
is named GreenMountain.com Company; and (iii) is taxable as a corporation. In
connection with the conversion, the limited liability company agreement
terminated, except for covenants that, by their terms, require performance
after the termination of such agreement and each member became entitled to
receive three shares of GreenMountain.com common stock in exchange for each of
its common units of the limited liability company. Additionally, any
undistributed tax losses at the date of reorganization will be reclassified
against additional paid in capital. All outstanding options and warrants
exercisable for common units of the limited liability company were, in effect,
converted into options or warrants exercisable for GreenMountain.com common
stock. The common stock information in the financial statements and notes has
been restated as if the common units were converted to common shares.
(13) Subsequent Event--Warrant Holder Claim
On June 18, 1999, GreenMountain.com received a letter on behalf of Andersen
Weinroth Capital Corporation and Andersen, Weinroth & Co., L.P. claiming that
(1) a warrant held by Andersen Weinroth Capital Corporation entitled it to
purchase 342,000 shares of common stock at $2.50 per share, rather than 11,343
shares of common stock at a price of $75.59 per share as determined by
GreenMountain.com, and (2) Andersen, Weinroth & Co., L.P. was entitled to a
payment of $330,000 upon consummation of GreenMountain.com's initial public
offering. On June 23, 1999, a complaint was filed in the Supreme Court of the
State of New York, County of New York (Index No. 603019/99), based on these
assertions. GreenMountain.com believes that the assertions are without merit
and intends to defend vigorously these legal proceedings. GreenMountain.com is
presently unable to estimate with reasonable certainty the likelihood of
success of the claims or the amount of the loss, if any, that it may incur as a
result of the claims.
F-18
<PAGE>
[Description of Inside Back Cover Page Artwork]
Top: text reading "Wouldn't it be great if what was purchased online helped
create a brighter future for your kids & the planet?"
Left middle: text reading "GreenMountain.com seeks to become a new
marketplace community where families, kids and others can help create a better
world. The site will be a cool and quick destination that translates
environmental awareness into action. Motivated to dramatically shape shopping
habits, GreenMountain.com hopes to benefit consumers and the world we all live
in."
Right bottom: image of child holding planet earth.
<PAGE>
Until , 1999, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[GreenMountain.com logo]
Prudential Securities
BancBoston Robertson Stephens
Deutsche Banc Alex. Brown
Volpe Brown Whelan & Company
FAC/Equities
First Union Capital Markets Corp.
The Robinson-Humphrey Company
E*OFFERING
["Choose wisely. It's a small planet." logo]
[Description of Outside Back Cover Artwork]
Bottom: image of children each holding planet Earth, with sun rings in
background
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses, other than the underwriting
discounts and commissions, paid or payable by the Registrant in connection with
the distribution of the securities being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 166,800
NASD Filing Fee................................................ 30,500
Nasdaq National Market Listing Fee............................. 95,000
Advisory Fee................................................... 675,000
Printing costs................................................. 550,000
Legal Fees and Expenses........................................ 1,000,000
Accounting Fees and Expenses................................... 500,000
Blue Sky Fees and Expenses..................................... 2,000
Miscellaneous.................................................. 155,700
-----------
Total $ 3,175,000
===========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Limitation Of Liability And Indemnification Matters
The Registrant's certificate of incorporation limits the liability of the
Registrant's directors to the maximum extent permitted by Delaware law.
Delaware law provides that a director of a corporation will not be personally
liable for monetary damages for breach of that individual's fiduciary duties as
a director except for liability for (1) a breach of the director's duty of
loyalty to the corporation or its stockholders, (2) any act or omission not in
good faith or that involves intentional misconduct or a knowing violation of
the law, (3) unlawful payments of dividends or unlawful stock repurchases or
redemptions, or (4) any transaction from which the director derived an improper
personal benefit.
This limitation of liability does not apply to liabilities arising under
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or recission.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers, as well as other employees
and individuals, against attorneys fees and other expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with any threatened, pending or completed actions, suits or
proceedings in which such person was or is a party or is threatened to be made
a party by reason of such person being or having been a director, officer,
employee or agent of the corporation. The Delaware General Corporation Law
provides that Section 145 is not exclusive of other rights to which those
seeking indemnification may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
The Registrant's certificate of incorporation and bylaws provide that the
Registrant is required to indemnify its directors and officers to the maximum
extent permitted by law. The Registrant's bylaws also require the Registrant to
advance expenses incurred by an officer or director in connection with the
defense of any action or proceeding arising out of that party's status or
service as a director or officer of the Registrant or as a director, officer,
employer or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, if serving as such at the
Registrant's request. The Registrant's bylaws also permit the Registrant to
secure insurance on behalf of any director or officer for any liability arising
out of his or her actions in a representative capacity.
II-1
<PAGE>
The Registrant intends to enter into indemnification agreements with its
directors and some of its officers containing provisions that (1) indemnify, to
the maximum extent permitted by Delaware law, those directors and officers
against liabilities that may arise by reason of their status or service as
directors or officers except liabilities arising from willful misconduct of a
culpable nature, (2) to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and (3) to
obtain directors' and officers' liability insurance if maintained for other
directors or officers.
The Registrant's predecessor limited liability company had liability
insurance for its management committee members and officers and the Registrant
intends to obtain directors' and officers' liability insurance for its
directors and officers.
Reference is also made to the Underwriting Agreement to be filed as Exhibit
1.1 to the Registration Statement for information concerning the underwriters'
obligation to indemnify the Registrant and its officers and directors in
certain circumstances.
Item 15. Recent Sales of Unregistered Securities.
Since its formation on February 26, 1997, the limited liability company (the
"LLC") predecessor to the Registrant issued and sold the following securities:
(1) In August 1997, the LLC issued and sold membership interests
representing 67% of the LLC to Green Funding I, L.L.C. in exchange for $8.0
million in cash and a commitment to contribute an additional $22.0 million
in cash over time and membership interests representing 33% to Green
Mountain Resources, Inc., a subsidiary of Green Mountain Power Corporation,
in exchange for a contribution of property. The issuance of these
membership interests was exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended (the "Act").
(2) In August 1997, the LLC issued warrants to purchase membership
interests to its consultants and advisors in exchange for services
performed by such consultants and advisors. The issuance of these warrants
was exempt from registration under Section 4(2) of the Act. These warrants
are currently exercisable to purchase 3,980 common units of the LLC at an
exercise price of $226.76 per unit.
(3) In September 1997, the LLC issued and sold additional membership
interests to Green Funding I, L.L.C. in exchange for $10.0 million in cash,
increasing Green Funding I, L.L.C.'s ownership interest to approximately
73% of the LLC. The issuance of these membership interests was exempt from
registration under Section 4(2) of the Act.
(4) In November 1998, the LLC issued and sold additional membership
interests to Green Funding I, L.L.C., in exchange for $20.0 million in
cash, increasing Green Funding I, L.L.C.'s ownership interest to
approximately 99% of the LLC. The issuance of these membership interests
was exempt from registration under Section 4(2) of the Act.
(5) In early January and early February 1999, membership interests in
the LLC were unitized and the LLC issued and sold 47,750 common units of
the LLC to 34 of its employees in a private offering under a compensatory
plan, the Employee Unit Purchase Plan, in exchange for an aggregate of
$477,500, of which $250,500 was paid in cash and $227,000 was paid using
promissory notes payable to the LLC and secured by the acquired units as
permitted under the Employee Unit Purchase Plan. The issuance of these
common units was exempt from registration under Rule 701 promulgated by the
Securities and Exchange Commission (the "Commission") under Section 3(b) of
the Act.
(6) In early January and early February 1999, the LLC issued and sold
952,250 common units of the LLC in a private offering to 28 individuals and
entities, each of which qualified as an accredited investor as defined in
Rule 501(a). Sixteen of these persons acquired 908,250 common units for an
aggregate of $9,082,500, of which $4,201,250 was paid in cash and
$4,881,250 was paid using promissory notes payable to the LLC and secured
by the acquired units as permitted under the Employee Unit
II-2
<PAGE>
Purchase Plan. Twelve of these persons were consultants or advisors who
acquired 44,000 common units for an aggregate of $440,000 in cash. The
issuance of these common units was exempt from registration under Section
4(2) of the Act and was made in compliance with Rule 506 under the Act.
(7) In February 1999, the LLC issued and sold 1,515,500 common units of
the LLC in a private offering to 28 individuals and entities in exchange
for an aggregate of $30,310,000 in cash. Each individual and entity
qualified as an accredited investor under Rule 501(a). The issuance of
these common units was exempt from registration under Section 4(2) of the
Act and was made in compliance with Rule 506 under the Act.
All sales were made without general solicitation or general advertising.
Each purchaser represented that such purchaser was acquiring the interest for
investment purposes.
On June 18, 1999, the LLC merged into the Registrant and each common unit of
the LLC was converted into the right to receive three shares of Registrant's
common stock. In addition, all outstanding options and warrants exercisable for
common units in the LLC were, in effect, converted into options or warrants
exercisable for the Registrant's common stock.
Item 16. Exhibits.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Agreement and Plan of Merger by and between the LLC and the
Registrant*
3.1 Amended and Restated Certificate of Incorporation of the
Registrant*
3.2 Amended and Restated Bylaws of the Registrant*
4.1 Specimen Certificate of the Registrant's Common Stock*
4.2 Registration Rights Agreement by and among the Registrant and the
stockholders indicated therein*
4.3 Warrant to Purchase Interest in Green Mountain Energy Resources
L.L.C. issued to Shallowbrook Securities, Ltd., dated as of
August 6, 1997*
4.4 Warrant to Purchase Interest in Green Mountain Energy Resources
L.L.C. issued to Capital Investment Group, Inc., dated as of
August 6, 1997*
5.1 Opinion of Jones, Day, Reavis & Pogue*
10.1 Second Amended and Restated Operating Agreement of the LLC, dated
as of March 26, 1999*
10.2 Employee Unit Purchase Plan of the LLC, as amended*
10.3 1997 Employee Ownership Plan of the LLC*
10.4 1999 Unit Option Plan of the LLC*
10.5 Form of 1999 Stock Option Plan of the Registrant
10.6 Employment Agreement, dated as of October 5, 1998, by and between
the LLC and M. David White, as amended*
10.7 Employment Agreement, dated as of August 6, 1997, by and between
the LLC and Douglas G. Hyde*
10.8 Separation Agreement and Release, dated as of October 6, 1998, by
and between the LLC and Douglas G. Hyde*
10.9 Form of Employment Agreement, dated as of August 6, 1997, by and
between the LLC and each of the following individuals: Kevin W.
Hartley, Thomas C. Boucher, David B. Luther and Peter H. Zamore*
10.10 Form of Operating Management Option Agreement, dated as of August
6, 1997, by and between the LLC and each of the following
individuals: Douglas G. Hyde, Kevin W. Hartley, Thomas C.
Boucher, David B. Luther and Peter H. Zamore*
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.11 Form of Supervisory Management Option Agreement, dated as of
August 6, 1997, by and between the LLC and each of the following
individuals: Sam Wyly, Evan A. Wyly and Lisa Wyly*
10.12 Letter Agreement, dated as of February 5, 1999, by and between
the LLC and Dennis M. Crumpler, as amended*
10.13 Form of Indemnification Agreement*
10.14 Agreement, dated as of December 23, 1998, among the LLC, Green
Mountain Power Corporation, Green Mountain Resources, Inc. and
Green Funding I, L.L.C.*
10.15 Funding Agreement, dated as of April 23, 1999, by and between
Green Funding I, L.L.C. and the LLC*
10.16 Form of Promissory Note, made by Messrs. Boucher, Canon,
Crumpler, Hartley, Kelly, LeDuc, Rawls, White and Zamore and
Mmes. Blunden and O'Neill, to the order of the Registrant, in
connection with the purchase of common units of the limited
liability company*
10.17 Form of 1999 Director Stock Award Plan*
10.18 Agreement, dated as of January 1, 1998, by and between The
Cullinan Group and the Registrant+*
10.19 Master Agreement, dated as of September 11, 1998, by and between
DTE-CoEnergy, L.L.C. and the Registrant+*
10.20 First Amendment to Master Agreement, dated as of November 25,
1998, by and between DTE-CoEnergy, L.L.C. and the Registrant*
10.21 Second Amendment to Master Agreement, dated as of February 18,
1999, by and between DTE-CoEnergy, L.L.C. and the Registrant*
10.22 Advertising and Promotion Agreement, dated as of March 25, 1999,
by and between Yahoo! and the Registrant+
23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)*
23.2 Consent of Arthur Andersen LLP, independent public accountants
24.1 Power of Attorney*
27.1 Financial Data Schedule for the Period from Inception (February
26, 1997) through December 31, 1997*
27.2 Financial Data Schedule for the Year ended December 31, 1998*
27.3 Financial Data Schedule for the Three-Month Period Ended March
31, 1998*
27.4 Financial Data Schedule for the Three-Month Period Ended March
31, 1999*
99.1 Consent of Mark Cuban pursuant to Rule 438 under the Act*
99.2 Consent of Richard E. Hanlon pursuant to Rule 438 under the Act*
99.3 Consent of Reed E. Maltzman pursuant to Rule 438 under the Act*
99.4 Consent of Copernicus, The Marketing Investment Strategy Group*
99.5 Consent of Jupiter Communications*
99.6 Consent of Jacquelyn Ottman*
99.7 Consent of Regulatory Research Associates*
99.8 Consent of Roper Starch Worldwide Inc.*
99.9 Consent of Social Investment Forum*
99.10 Consent of Worldwatch Institute*
99.11 Consent of Xenergy*
99.12 Consent of Dianne Dillon-Ridgley pursuant to Rule 438 under the
Act*
</TABLE>
- --------
* Previously filed.
+ Confidential treatment has been requested for certain confidential portions
of this exhibit pursuant to Rule 406 under the Act. In accordance with Rule
406, these confidential portions have been omitted from this exhibit and
filed separately with the Commission.
II-4
<PAGE>
(b) Financial Statement Schedules
Report of Independent Public Accountants
Schedule II -- Reserves for the Period from Inception (February 26,
1997) through December 31, 1997
Schedule II -- Reserves for the Year ended December 31, 1998
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant 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 Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant 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 Registrant 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 of 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.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to 424(b)(1) or (4), or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 5 to Registration Statement No.
333-75171 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of South Burlington, State of Vermont, on June 24,
1999.
GREENMOUNTAIN.COM COMPANY
By: /s/ M. David White
----------------------------------
M. David White
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 5 to Registration Statement No. 333-75171 has been signed below
by the following persons in the capacities indicated on June 24, 1999:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ M. David White Chief Executive Officer
___________________________________________ (Principal Executive Officer)
M. David White
* Chief Financial Officer
__________________________________________ (Principal Financial Officer)
K. Scott Canon
* Controller
___________________________________________ (Principal Accounting Officer)
Michael Bursell
* Director
___________________________________________
Sam Wyly
* Director
___________________________________________
Dennis M. Crumpler
* Director
___________________________________________
Evan A. Wyly
* Director
___________________________________________
H. Lee S. Hobson
* Director
___________________________________________
Lisa Wyly
</TABLE>
* The undersigned, by signing his or her name hereto, does sign and execute
this Amendment No. 5 to Registration Statement No. 333-75171 pursuant to the
Powers of Attorney executed on behalf of the above-named officers and directors
and previously filed with the Securities and Exchange Commission.
By: /s/ M. David White
- -------------------------------------
M. David White,
Attorney-in-fact
II-6
<PAGE>
Report of Independent Public Accountants
To the Stockholders of
GreenMountain.com Company:
We have audited, in accordance with generally accepted auditing standards,
the financial statements of GreenMountain.com Company included in this
registration statement and have issued our report thereon. Our audit was made
for the purpose of forming an opinion on the basic financial statements taken
as a whole. The schedules listed in the accompanying index are the
responsibility of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Boston, Massachusetts
June 18, 1999
<PAGE>
SCHEDULE II
GreenMountain.com Company
Reserves
For the Period From Inception (February 26, 1997) through December 31, 1997
<TABLE>
<CAPTION>
Balance at Balance at
beginning end of
of year Additions Deductions year
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Reserves deducted from assets to
which they apply:
Reserve for uncollectible
accounts receivable............. $ -- $ -- $ -- $ --
----- ----- ----- -----
</TABLE>
<PAGE>
SCHEDULE II
GreenMountain.com Company
Reserves
Year ended December 31, 1998
<TABLE>
<CAPTION>
Balance at Balance at
beginning end of
of year Additions Deductions year
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Reserves deducted from assets to
which they apply:
Reserve for uncollectible
accounts receivable............. $ -- $34,956 $ -- $34,956
----- ------- ----- -------
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Agreement and Plan of Merger by and between the LLC and the
Registrant*
3.1 Amended and Restated Certificate of Incorporation of the Registrant*
3.2 Amended and Restated Bylaws of the Registrant*
4.1 Specimen Certificate of the Registrant's Common Stock*
4.2 Registration Rights Agreement by and among the Registrant and the
stockholders indicated therein*
4.3 Warrant to Purchase Interest in Green Mountain Energy Resources L.L.C.
issued to Shallowbrook Securities, Ltd., dated as of August 6, 1997*
4.4 Warrant to Purchase Interest in Green Mountain Energy Resources L.L.C.
issued to Capital Investment Group, Inc., dated as of August 6, 1997*
5.1 Opinion of Jones, Day, Reavis & Pogue*
10.1 Second Amended and Restated Operating Agreement of the LLC, dated as
of March 26, 1999*
10.2 Employee Unit Purchase Plan of the LLC, as amended*
10.3 1997 Employee Ownership Plan of the LLC*
10.4 1999 Unit Option Plan of the LLC*
10.5 Form of 1999 Stock Option Plan of the Registrant
10.6 Employment Agreement, dated as of October 5, 1998, by and between the
LLC and M. David White, as amended*
10.7 Employment Agreement, dated as of August 6, 1997, by and between the
LLC and Douglas G. Hyde*
10.8 Separation Agreement and Release, dated as of October 6, 1998, by and
between the LLC and Douglas G. Hyde*
10.9 Form of Employment Agreement, dated as of August 6, 1997, by and
between the LLC and each of the following individuals: Kevin W.
Hartley, Thomas C. Boucher, David B. Luther and Peter H. Zamore*
10.10 Form of Operating Management Option Agreement, dated as of August 6,
1997, by and between the LLC and each of the following individuals:
Douglas G. Hyde, Kevin W. Hartley, Thomas C. Boucher, David B. Luther
and Peter H. Zamore*
10.11 Form of Supervisory Management Option Agreement, dated as of August 6,
1997, by and between the LLC and each of the following individuals:
Sam Wyly, Evan A. Wyly and Lisa Wyly*
10.12 Letter Agreement, dated as of February 5, 1999, by and between the LLC
and Dennis M. Crumpler, as amended*
10.13 Form of Indemnification Agreement*
10.14 Agreement, dated as of December 23, 1998, among the LLC, Green
Mountain Power Corporation, Green Mountain Resources, Inc. and Green
Funding I, L.L.C.*
10.15 Funding Agreement, dated as of April 23, 1999, by and between Green
Funding I, L.L.C. and the LLC*
10.16 Form of Promissory Note, made by Messrs. Boucher, Canon, Crumpler,
Hartley, Kelly, LeDuc, Rawls, White and Zamore and Mmes. Blunden and
O'Neill, to the order of the Registrant, in connection with the
purchase of common units of the limited liability company*
10.17 Form of 1999 Director Stock Award Plan*
Agreement, dated as of January 1, 1998, by and between The Cullinan
10.18 Group and the Registrant+*
10.19 Master Agreement, dated as of September 11, 1998, by and between DTE-
CoEnergy, L.L.C. and the Registrant+*
10.20 First Amendment to Master Agreement, dated as of November 25, 1998, by
and between DTE-CoEnergy, L.L.C. and the Registrant*
10.21 Second Amendment to Master Agreement, dated as of February 18, 1999,
by and between DTE-CoEnergy, L.L.C. and the Registrant*
10.22 Advertising and Promotion Agreement, dated as of March 25, 1999, by
and between Yahoo! and the Registrant+
23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)*
23.2 Consent of Arthur Andersen LLP, independent public accountants
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
24.1 Power of Attorney*
27.1 Financial Data Schedule for the Period from Inception (February 26,
1997) through December 31, 1997*
27.2 Financial Data Schedule for the Year ended December 31, 1998*
27.3 Financial Data Schedule for the Three-Month Period Ended March 31,
1998*
27.4 Financial Data Schedule for the Three-Month Period Ended March 31,
1999*
99.1 Consent of Mark Cuban pursuant to Rule 438 under the Act*
99.2 Consent of Richard E. Hanlon pursuant to Rule 438 under the Act*
99.3 Consent of Reed E. Maltzman pursuant to Rule 438 under the Act*
99.4 Consent of Copernicus, The Marketing Investment Strategy Group*
99.5 Consent of Jupiter Communications*
99.6 Consent of Jacquelyn Ottman*
99.7 Consent of Regulatory Research Associates*
99.8 Consent of Roper Starch Worldwide Inc.*
99.9 Consent of Social Investment Forum*
99.10 Consent of Worldwatch Institute*
99.11 Consent of Xenergy*
99.12 Consent of Dianne Dillon-Ridgley pursuant to Rule 438 under the Act*
</TABLE>
- --------
* Previously filed.
+ Confidential treatment has been requested for certain confidential portions
of this exhibit pursuant to Rule 406 under the Act. In accordance with Rule
406, these confidential portions have been omitted from this exhibit and
filed separately with the Commission.
<PAGE>
EXHIBIT 10.5
FORM
OF
GREENMOUNTAIN.COM COMPANY
1999 STOCK OPTION PLAN
GreenMountain.com Company, a Delaware corporation (the "Company") and
successor by merger to Green Mountain Energy Resources L.L.C., a Delaware
limited liability company, hereby adopts the GreenMountain.com Company 1999
Stock Option Plan (the "Plan"), effective as of __________, 1999. The Plan
amends and completely restates the Green Mountain Energy Resources L.L.C.
Employee Ownership Plan and the Green Mountain Energy Resources L.L.C. 1999 Unit
Option Plan, except that the provisions of each such prior option plan will
remain in effect after the effective date of this Plan solely for purposes of
supplying any necessary terms not set forth in this Plan and incorporated by
reference into the options granted under each such prior option plan.
1. Purpose. The purpose of the Plan is to attract and retain the best
-------
available talent and encourage the highest level of performance by executive
officers, key employees, directors, advisors and consultants, and to provide
them with incentives to put forth maximum efforts for the success of the
Company's business, in order to serve the best interests of the Company and its
stockholders. All options granted under the Plan are intended to be
nonstatutory stock options.
2. Definitions. The following terms, when used in the Plan with initial
-----------
capital letters, will have the following meanings:
(a) "Act" means the Securities Exchange Act of 1934 as in effect from
time to time.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as in effect from
time to time.
(d) "Common Stock" means the common stock, par value $0.01 per share,
of the Company or any security into which such common stock may be changed
by reason of any transaction or event of the type described in Paragraph 7.
(e) "Date of Grant" means the date specified by the Stock Option
Committee or the Board, as applicable, on which a grant of Stock Options
will become effective (which date will not be earlier than the date on
which the Stock Option Committee or the Board takes action with respect
thereto).
(f) "Market Value per Share" means the fair market value per share of
the Common Stock on the Date of Grant as determined by the Stock Option
Committee or the Board, as applicable.
<PAGE>
(g) "Option Price" means the purchase price per share payable on
exercise of a Stock Option.
(h) "Participant" means a person who is selected by the Stock Option
Committee or the Board, as applicable, to receive Stock Options under
Paragraph 5 of the Plan and who is at that time (i) an executive officer or
other key employee of the Company or any Subsidiary, (ii) an advisor or
consultant to the Company or any Subsidiary, (iii) a member of the Board or
(iv) a prospective employee, advisor, consultant or Board member selected
to receive Stock Options pursuant to a written offer of employment or a
written offer to perform services in any other capacity for the Company or
any Subsidiary.
(i) "Prior Option Plan" means each of the Green Mountain Energy
Resources L.L.C. Employee Ownership Plan and the Green Mountain Energy
Resources L.L.C. 1999 Unit Option Plan.
(j) "Rule 16b-3" means Rule 16b-3 under Section 16 of the Act as such
Rule is in effect from time to time.
(k) "Stock Option Committee" means the Special Compensation Committee,
which is a committee of the Board whose members are appointed by the Board
from time to time. All of the members of the Stock Option Committee, which
may not be less than two, are intended at all times to qualify as "outside
directors" within the meaning of Section 162(m) of the Code and as
"Non-Employee Directors" within the meaning of Rule 16b-3; provided,
--------
however, that the failure of a member of such committee to so qualify will
-------
not invalidate any Stock Option granted by such committee.
(l) "Stock Option" means the right to purchase one or more shares of
Common Stock upon exercise of an option granted pursuant to Paragraph 5.
(m) "Subsidiary" means any corporation, partnership, limited liability
company, joint venture or other entity in which the Company owns or
controls, directly or indirectly, not less than 50% of the total combined
voting power or equity interests represented by all classes of stock or
other equity interests issued by such corporation, partnership, limited
liability company, joint venture or other entity.
3. Shares Available Under Plan. The shares of Common Stock which may be
---------------------------
issued under the Plan will not exceed in the aggregate 9,304,713 subject to
adjustment as provided in this Paragraph 3. Such shares may be shares of
original issuance or treasury shares or a combination of the foregoing.
(a) Any shares of Common Stock which are subject to Stock Options that
are terminated unexercised, forfeited or surrendered or that expire for any
reason will again be available for issuance under the Plan.
-2-
<PAGE>
(b) If, as of the close of business on the last day of each fiscal
quarter of the Company following the effective date of the Plan, the sum of
(i) the total number of shares of Common Stock previously issued upon the
exercise of Stock Options and options granted by the Company or its
predecessor prior to the effective date hereof, (ii) the total number of
shares of Common Stock then subject to outstanding Stock Options and
options granted by the Company or its predecessor prior to the effective
date hereof, and (iii) the total number of shares of Common Stock then
remaining available for future Stock Option grants under the Plan (such sum
being the "Plan Shares") is less than 20% of the total number of shares of
Common Stock then outstanding computed on a fully diluted basis (such total
number being the "Outstanding Shares"), the number of shares of Common
Stock available for issuance under the Plan will be increased (but not
decreased) so that the number of Plan Shares will be equal to 20% of the
number of Outstanding Shares. For purposes of the foregoing adjustment, all
outstanding Stock Options and options granted under a Prior Option Plan or
any other Company plans will be treated as fully exercised in computing the
number of outstanding shares of Common Stock on a fully diluted basis,
without regard to whether such options are then fully exercisable.
(c) The shares available for issuance under the Plan also will be
subject to adjustment as provided in Paragraph 7.
4. Individual Limitation on Stock Options. The maximum aggregate number
--------------------------------------
of shares of Common Stock with respect to which Stock Options may be granted to
any Participant during any single calendar year will not exceed 2,346,656.
5. Grants of Stock Options. The Stock Option Committee or the Board may
-----------------------
from time to time authorize grants to any Participant of Stock Options upon such
terms and conditions as the Stock Option Committee or the Board, as applicable,
may determine in accordance with the provisions set forth below.
(a) Each grant will specify the number of shares of Common Stock to
which it pertains.
(b) Each grant will specify the Option Price, which will not be less
than 100% of the Market Value per Share on the Date of Grant.
(c) Successive grants may be made to the same Participant whether or
not any Stock Options previously granted to such Participant remain
unexercised.
(d) Each grant will specify the required period or periods (if any) of
continuous service by the Participant with the Company or any Subsidiary
and/or any other conditions to be satisfied before the Stock Options or
installments thereof will become exercisable, and any grant may provide, or
may be amended to provide, for the earlier exercise of the Stock Options in
the event of a change in control of the Company (as defined in the stock
option agreement evidencing such grant or in any agreement referred to in
such stock option agreement) or in the event of any other similar
transaction or event.
-3-
<PAGE>
(e) Each Stock Option may be made subject to such transfer
restrictions as the Stock Option Committee or the Board, as applicable, may
determine.
(f) Each grant will be evidenced by a stock option agreement executed
on behalf of the Company by the Chief Executive Officer (or another officer
designated by the Stock Option Committee or the Board, as applicable) and
delivered to the Participant and containing such further terms and
provisions, consistent with the Plan, as the Stock Option Committee or the
Board, as applicable, may approve.
(g) For purposes of any provision in a stock option agreement relating
to the effect on a Stock Option of a Participant's ceasing to perform
services for the Company or any Subsidiary, a termination of employment or
other separation from service will occur when the Participant permanently
ceases to perform services for the Company and all Subsidiaries or when the
entity for which the Participant is performing services ceases to be a
Subsidiary, unless the Participant immediately becomes employed by the
Company or another Subsidiary.
6. Payment. The Option Price will be payable, as required by the Stock
-------
Option Committee or the Board in such Committee's or the Board's sole
discretion, as applicable, (i) in cash or by check acceptable to the Company,
(ii) by the transfer to the Company of shares of Common Stock owned by the
Participant for at least six months (or, with the consent of the Stock Option
Committee or the Board, as applicable, for less than six months) having an
aggregate fair market value per share at the date of exercise equal to the
aggregate Option Price, (iii) in any other form of valid consideration or (iv)
by a combination of such methods of payment; provided, however, that the payment
-------- -------
methods described in clause (ii) will not be available at any time
that the Company is prohibited from purchasing or acquiring such shares of
Common Stock. The Stock Option Committee or the Board, as applicable, may
permit deferred payment of the Option Price from the proceeds of sale through a
bank or broker of some or all of the shares to which such exercise relates.
7. Adjustments. The Stock Option Committee or the Board may make or
-----------
provide for such adjustments in the maximum number of shares specified in
Paragraphs 3 and 4, in the number of shares of Common Stock covered by
outstanding Stock Options granted hereunder, in the Option Price applicable to
any such Stock Options, and/or in the kind of shares covered thereby (including
shares of another issuer), as the Stock Option Committee or the Board, as
applicable, in its sole discretion, exercised in good faith, may determine is
equitably required to prevent dilution or enlargement of the rights of
Participants that otherwise would result from any stock dividend, stock split,
combination of shares, recapitalization or other change in the capital structure
of the Company, merger, consolidation, spin-off, reorganization, partial or
complete liquidation, issuance of rights or warrants to purchase securities or
any other corporate transaction or event having an effect similar to any of the
foregoing. Moreover, in the event of any such transaction or event, the Stock
Option Committee or the Board, as applicable, in its sole discretion, may
provide in substitution for Common Stock to be delivered upon the exercise of
outstanding Stock Options such alternative consideration as it, in good faith,
may determine to be
-4-
<PAGE>
equitable in the circumstances. In the event the Stock Option Committee
disagrees with the Board with respect to the foregoing adjustments, the Board's
determination will be final and conclusive. Any fractional shares resulting from
the foregoing adjustments will be eliminated.
8. Withholding of Taxes. To the extent that the Company is required to
--------------------
withhold federal, state, local or foreign taxes in connection with any benefit
realized by a Participant under the Plan, or is requested by a Participant to
withhold additional amounts with respect to such taxes, and the amounts
available to the Company for such withholding are insufficient, it will be a
condition to the realization of such benefit that the Participant make
arrangements satisfactory to the Company for payment of the balance of such
taxes required or requested to be withheld. In addition, if permitted by the
Stock Option Committee or the Board, a Participant may elect to have any
withholding obligation of the Company satisfied with shares of Common Stock that
would otherwise be transferred to the Participant on exercise of a Stock Option.
9. Administration of the Plan. (a) The Plan will be administered by the
--------------------------
Stock Option Committee and the Board. For purposes of any action taken by the
Stock Option Committee or the Board, whichever is applicable, a majority of the
members will constitute a quorum, and the action of the members present at any
meeting at which a quorum is present, or acts unanimously approved in writing,
will be the acts of the Stock Option Committee or the Board.
(b) The Stock Option Committee and the Board have the full authority
and discretion to administer the Plan and to take any action that is necessary
or advisable in connection with the administration of the Plan, including
without limitation the authority and discretion to interpret and construe any
provision of the Plan or of any agreement, notification or document evidencing
the grant of a Stock Option and to make any determination of fact relating to
the foregoing. The interpretation and construction by the Stock Option
Committee or the Board, as applicable, of any such provision and any
determination by the Stock Option Committee or the Board pursuant to any
provision of the Plan or of any such agreement, notification or document will be
final and conclusive; provided, that in the event the Stock Option Committee
--------
disagrees with the Board with respect to such interpretation, construction or
determination, the Board's determination will be final and conclusive. No
member of the Stock Option Committee or the Board will be liable for any such
action or determination made in good faith.
(c) Notwithstanding any provision of the Plan to the contrary, the
Stock Option Committee will have the exclusive authority and discretion to take
any action required or permitted to be taken under the provisions of Paragraph
7, Paragraph 9(a), Paragraph 9(b), Paragraph 10(a) and Paragraph 10(b) with
respect to Stock Options granted under the Plan that are intended to comply with
the requirements of Section 162(m) of the Code.
10. Amendments, Etc. (a) The Stock Option Committee or the Board, as
----------------
applicable, may, without the consent of the Participant, amend any agreement
evidencing a Stock Option granted under the Plan, or otherwise take action, to
accelerate the time or times at which the Stock Option may be exercised, to
extend the expiration date of the Stock Option, to waive any other condition or
restriction applicable to such Stock Option or to the exercise of such Stock
Option, to reduce the exercise price of such Stock Option, to amend the
definition of a change in control of the Company (if such a definition is
contained in such agreement) to expand the events
-5-
<PAGE>
that would result in a change in control of the Company and to add a change in
control provision to such agreement (if such provision is not contained in such
agreement) and may amend any such agreement in any other respect with the
consent of the Participant.
(b) The Plan may be amended from time to time by the Board or any duly
authorized committee thereof. In the event any law, or any rule or regulation
issued or promulgated by the Internal Revenue Service, the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc., any
stock exchange upon which the Common Stock is listed for trading, or any other
governmental or quasi-governmental agency having jurisdiction over the Company,
the Common Stock or the Plan, requires the Plan to be amended, or in the event
Rule 16b-3 is amended or supplemented (e.g., by addition of alternative rules)
----
or any of the rules under Section 16 of the Act are amended or supplemented, in
either event to permit the Company to remove or lessen any restrictions on or
with respect to Stock Options, the Stock Option Committee and the Board each
reserves the right to amend the Plan to the extent of any such requirement,
amendment or supplement, and all Stock Options then outstanding will be subject
to such amendment.
(c) The Plan may be terminated at any time by action of the Board.
The termination of the Plan will not adversely affect the terms of any
outstanding Stock Option.
(d) The Plan will not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or any
Subsidiary, nor will it interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate a Participant's employment or other
service at any time.
(e) The Plan will be governed by the laws of the State of Delaware
without regard to conflicts or choice of laws principles.
GREENMOUNTAIN.COM COMPANY
By:
-------------------------------------
Name:
-------------------------------
Title:
-------------------------------
-6-
<PAGE>
EXHIBIT 10.22
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS DOCUMENT.
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
ADVERTISING AND PROMOTION AGREEMENT
This Advertising and Promotion Agreement (this "Agreement") is entered into
---------
as of March 25, 1999 (the "Effective Date") between Yahoo! Inc., a California
--------------
corporation with offices at 3420 Central Expressway, Santa Clara, CA 95051
("Yahoo") and Green Mountain Energy Resources, L.L.C., a Delaware limited
-------
liability corporation with offices at 55 Green Mountain Drive, South Burlington,
VT 05407-2206 ("Green Mountain").
In consideration of the mutual promises contained in this Agreement, Yahoo
and Green Mountain hereby agree as follows:
1. Definitions.
-----------
The following terms are used in this Agreement with the respective meanings
set forth below:
"Green Mountain Banner" shall mean an advertising promotion substantially
---------------------
similar in form as that set forth on Exhibit A that: (a) promotes Green Mountain
---------
energy services, (b) has dimensions no larger than 468 pixels wide by 60 pixels
high, (c) does not have "looped" animation, (d) does not have any animation
longer than six seconds, (e) has a file size no greater than 12K, and (f) will
permit users to navigate directly to a Page on the Green Mountain Site relating
to consumer energy services. Yahoo may modify these specifications in its
discretion provided that such modification applies to Premier Merchants
generally and does not have a material adverse impact on Green Mountain.
"Green Mountain Button" shall mean a link substantially similar in form as
---------------------
that set forth on Exhibit A that: (a) contains a Green Mountain graphic or logo
---------
and has dimensions no larger than 88 pixels wide by 31 pixels high and promotes
Green Mountain energy services, (b) does not contain animation, (c) has a file
size no greater than 2K, and (d) will permit users to navigate directly to a
Page on the Green Mountain Site relating to consumer energy services. Yahoo may
modify these specifications in its discretion provided that such modification
applies to Premier Merchants generally and does not have a material adverse
impact on Green Mountain.
"Green Mountain E-Mail" shall mean an e-mail message promoting consumer
---------------------
energy services that: (a) is in HTML format (or text format if sent to email
addresses outside of the Yahoo Mail service), (b) has a file size no greater
than 30K, (c) does not have "looped" animation, (d) does not have any animation
longer than six seconds, (e) does not contain Java, JavaScript, frames, ActiveX,
dynamic HTML or background colors and (f) will permit users to navigate directly
to a Page on the Green Mountain Site relating to consumer energy services.
Yahoo may modify these specifications in its discretion provided that such
modification applies to Premier Merchants generally and does not have a material
adverse impact on Green Mountain.
"Green Mountain Link" shall mean any link placed by Yahoo under this
-------------------
Agreement, including, without limitation, the Green Mountain Banner and Green
Mountain Button. For clarity, each Green Mountain Link shall be provided as
indicated in this Agreement on a rotating basis with promotions of similarly
situated third party advertisers (i.e., no Green Mountain Link
<PAGE>
shall be permanently placed on any Page).
"Green Mountain Site" shall mean the web site owned by Green Mountain
-------------------
currently located at www.greenmountain.com.
"Launch Date" shall mean the date no later than May 1, on which Yahoo
-----------
activates a Green Mountain Link or delivers a Green Mountain E-Mail.
"Page" means any World Wide Web page (or, for online media other than Web
----
sites, the equivalent unit of the relevant protocol).
"Page View" shall mean a user's request for a Page as measured by Yahoo's
---------
advertiser reporting system and in a manner generally applicable to Yahoo's
Premier Merchants.
"Premier Merchant" shall have the meaning ascribed to such term in Section
----------------
10.3.
"Term" shall mean the period beginning on the Launch Date and continuing
----
for a period of twelve (12) months.
"Yahoo Mail Page" shall mean the home page of Yahoo's principal U.S. based
---------------
e-mail service currently located at http://mail.yahoo.com or any successor url.
---------------------
"Yahoo Main Site" shall mean Yahoo's principal U.S. based directory to the
---------------
World Wide Web currently located at http://www.yahoo.com or any successor url.
--------------------
"Yahoo Properties" shall mean any Yahoo branded or co-branded media
----------------
properties, including, without limitation, Internet guides, that are developed
in whole or in part by Yahoo or its affiliates.
2. Green Mountain Banner.
---------------------
2.1 Yahoo shall provide the Green Mountain Banner throughout the Yahoo
Properties, on a rotating basis until its Page View obligations are
met, to individuals whose Yahoo registration information indicates
that they are over the age of twenty-four and reside in California,
Pennsylvania or New Jersey; provided that Yahoo shall further define
those individuals to which the Green Mountain Banner shall be
displayed as residing in electric utility deregulated areas in
California, Pennsylvania or New Jersey on a zip code basis, if
technically feasible upon reasonable commercial efforts and, if not,
on a DMA basis if technically feasible upon reasonable commercial
efforts. Yahoo acknowledges that banners rotating throughout the Yahoo
Properties generally appear "above the fold" although Yahoo makes no
guarantee with respect to the Green Mountain Banner's placement on any
particular Page of the Yahoo Properties.
3. Green Mountain Button.
---------------------
3.1 Yahoo shall provide the Green Mountain Button on the Yahoo Mail Page,
on a rotating basis until its Page View obligations are met, to
individuals whose Yahoo registration information indicates that they
are over the age of twenty-four and
<PAGE>
reside in California, Pennsylvania or New Jersey; provided that Yahoo
shall further define those individuals to which the Green Mountain Button shall
be displayed as residing in electric utility deregulated areas in California,
Pennsylvania or New Jersey on a zip code basis, if technically feasible upon
reasonable commercial efforts, and, if not, on a DMA basis if technically
feasible upon reasonable commercial efforts. Yahoo acknowledges that merchant
buttons appearing on the Yahoo Properties generally appear "above the fold"
although Yahoo makes no guarantee with respect to the Green Mountain Button's
placement on the Yahoo Mail Page.
4. Green Mountain E-Mail.
---------------------
4.1 Yahoo shall deliver the Green Mountain E-Mail to: (i) *** registered
users of Yahoo's U.S. based email service, Yahoo Mail, that have
indicated during the registration process for such service (x) a
willingness to receive promotional solicitations via Yahoo Mail and
(y) that they are *** and reside in California, Pennsylvania or New
Jersey (provided that Yahoo shall further define those individuals to
which the Green Mountain E-Mail shall be delivered as residing in
electric utility deregulated areas in California, Pennsylvania or New
Jersey on a zip code basis if technically feasible upon reasonable
commercial efforts, and, if not, on a DMA basis if technically
feasible upon reasonable commercial efforts); and (ii) to each Yahoo
Mail user that clicks-through the Green Mountain Button (for clarity,
the e-mails delivered pursuant to this clause (ii) shall not count
against the number of e-mails that Yahoo shall deliver pursuant to
clause (i) of this Section 4.1). The text of the Green Mountain E-Mail
in either case shall be provided by Green Mountain and shall be
subject to Yahoo's approval and consistent with Yahoo's policies and
guidelines for such messages. Yahoo shall use reasonable commercial
efforts to ensure that no more than one (1) Green Mountain E-Mail
referenced in clause (i) of this Section 4.1 is delivered to a Yahoo
Mail user during each four (4) month period of the Term. In addition,
Yahoo agrees to not send such Green Mountain E-Mail to any individual
identified by Green Mountain as a current Green Mountain customer.
5. Implementation.
--------------
5.1 Subject to the provisions of this Agreement, Yahoo will be solely
responsible for the user interface and placement of the Green Mountain
Links and Green Mountain shall be solely responsible for and shall
provide Yahoo with all artwork and design elements of the Green
Mountain Links.
5.2 Green Mountain shall promptly provide Yahoo all URLs, URL formats (as
applicable), content, and other materials necessary for Yahoo to
provide the Green Mountain Links. All content and material contained
in the Green Mountain Links are subject to Yahoo's approval and must
comply with all applicable federal, state and local laws, rules and
regulations, including, without limitation, consumer protection laws
and rules and regulations governing product claims,
***Confidential treatment has been requested for the redacted portions. The
confidential redacted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE>
truth in labeling, and false advertising.
5.3 Green Mountain hereby grants to Yahoo a non-exclusive, worldwide,
fully paid license to use, reproduce and display the Green Mountain
name and logo (i) to indicate the location of the Green Mountain Links
as set forth herein and (ii) in connection with the marketing and
promotion of Green Mountain in the Yahoo Properties.
5.4 In no event shall any Page on the Green Mountain Site to which users
click-through directly from any Green Mountain Link, contain graphic
or textual hyperlinks, banner advertisements or promotions of any
Yahoo competitors, including, but not limited to: ***
5.5 Green Mountain shall place a Yahoo graphic link on those Pages of the
Green Mountain Site to which users click-through directly from any
Green Mountain Link. Such Yahoo graphic link shall (a) be placed in a
manner approved by Yahoo (b) contain the Yahoo name and logo as
provided by Yahoo and (c) directly link the user back to the Page on
the Yahoo Properties from which the User originated.
5.6 The Green Mountain Site shall comply with the scale, speed and
performance requirements mutually agreed upon by the parties but in no
event less than that which is reasonably equivalent (taking into
account volume differences) to the Yahoo Main Site.
6. Rights of First Presentation.
----------------------------
6.1 Within *** prior to the expiration of the Term, Yahoo will provide
written notice to Green Mountain in the event that Yahoo, at its sole
discretion, elects to extend this advertising and promotion program.
Yahoo shall describe Yahoo's reasonable business requirements for the
extension in its written notice to Green Mountain. The parties will
use good-faith efforts to negotiate and execute a written extension to
this Agreement under reasonable terms and conditions. If Green
Mountain declines to commence negotiations with Yahoo within *** after
receiving such written notice from Yahoo, or if the parties fail to
reach agreement within *** following the commencement of good faith
negotiations (or such later date as is agreed by the parties), Yahoo
may offer the opportunity to any third party. Under no circumstances
shall the foregoing right of first presentation be deemed to restrict
Yahoo's ability to extend other merchant positions in relating to this
advertising and promotion program to third parties.
6.2 This advertising and promotion program is designed to apply to
residents of California, Pennsylvania and New Jersey. As Green
Mountain energy services become available in additional states, Green
Mountain shall have the right of first presentation to extend this
advertising and promotion program to include such new states on terms
mutually agreed upon by the parties. For clarity, such an extension
shall include advertising and promotions similar in scope and
placement to those
***Confidential treatment has been requested for the redacted portions. The
confidential redacted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE>
described herein, at prices to be determined by the parties at the
time of such extension.
7. Page Views.
----------
7.1 With respect to the Green Mountain Banners and Buttons, Yahoo shall
deliver no less than *** Page Views. Yahoo shall use commercially
reasonable efforts to ensure that such Page Views are delivered evenly
to unique users in accordance with Yahoo's standard advertising
delivery system procedures.
7.2 Yahoo will use reasonable commercial efforts to deliver such Page
Views as follows: *** Page Views of the Green Mountain Banner; and ***
Page Views of the Green Mountain Button. Further, Yahoo shall use
reasonable commercial efforts to ensure that the Page Views of the
Green Mountain Banner referenced in this Section 7.2 are allocated
approximately as follows: nineteen (19%) percent to New Jersey
residents, thirty-six percent (36%) to Pennsylvania residents, and
forty-five percent (45%) to California residents (in each case as such
residents are further defined in Section 3.1); provided that if
deregulation on acceptable terms in New Jersey is delayed by more than
one month, on 30 days notice Yahoo shall shift a commensurate amount
of Green Mountain Banners to California and Pennsylvania subject to
availability. Notwithstanding anything to the contrary on this Section
7.2, Yahoo's Page View obligations are with respect to the program as
a whole as set forth in Section 7.1 and Yahoo shall not be in breach
of this Agreement for failure to deliver the number of Page Views in
either of the specific areas set forth in this Section 7.2.
7.3 In the event that Yahoo fails to deliver the number of Page Views
referred to in Section 7.1 above by the expiration of the Term, Yahoo
will "make good" the shortfall by extending its obligations under
Sections 2 and 3 in the areas of the Yahoo Main Site set forth therein
(or similar inventory) beyond the end of the Term until such Yahoo
Page View obligation is satisfied, provided that such obligation shall
be satisfied within six months from the end of the Term. The
provisions set forth in this Section 7.3 set forth the entire
liability of Yahoo, and Green Mountain's sole remedy, for Yahoo's
breach of its Page View obligations set forth in this Section 7.
7.4 Yahoo will treat Green Mountain on a basis reasonably equivalent to
its other Premier Merchants in terms of placement of Green Mountain
Banners and Buttons on the Yahoo Properties and location on specific
pages, taking into account the unique characteristics of this program.
Throughout the Term, the parties shall discuss in good faith mutually
beneficial adjustments to this advertising and promotion program,
subject in all cases to Yahoo's available advertising inventory.
***Confidential treatment has been requested for the redacted portions. The
confidential redacted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE>
7.5 Yahoo shall provide Green Mountain access twenty-four hours a day,
seven days a week, to an electronic database (updated on a monthly
basis) that describes Yahoo's calculation of the Page Views.
8. Compensation
------------
8.1 Slotting Fee. In consideration of Yahoo's performance and obligations
------------
as set forth herein, Green Mountain will pay Yahoo a non-refundable
slotting fee equal to six million nine thousand dollars ($6,009,000).
Such fee shall be payable as follows: (i) *** on the Effective Date
which shall be designated as a set up fee for design, consultation,
development, implementation and placement of the Green Mountain Links;
(ii) *** no less than seven days prior to the Launch Date, (iii) ***
ninety days after the Launch Date; (iv) *** one hundred eighty days
after the Launch Date; and (v) *** two hundred seventy days after the
Launch Date.
8.2 Referral Fee. In addition to the compensation described in Section
------------
8.1 above, Green Mountain shall pay Yahoo a quarterly referral fee
equal to *** for each new energy services account opened through the
promotions provided by Yahoo under this Agreement (the "Referral
Fee"). Such payments shall be made within ten (10) days of the end of
the calendar quarter for which such payments apply. Under no
circumstances, however, shall the Referral Fee exceed a total of four
hundred thousand dollars ($400,000) for the Term. For purposes of this
Section 8.2, the first calendar quarter of the Term shall be deemed to
be begin as of the Effective Date and end as of June 30, 1999.
8.3 Payment Information. All payments herein are non-refundable and non-
-------------------
creditable and shall be made by Green Mountain via wire transfer or
ACH electronic payment into Yahoo's main account pursuant (if by wire
transfer) to the wire transfer instructions set forth on Exhibit B.
---------
8.4 Late Payments. Any portion of the above payments which has not been
-------------
paid to Yahoo within ten (10) days of the dates set forth above shall
bear interest at the lesser of (i) one percent (1%) per month or (ii)
the maximum amount allowed by law. Notwithstanding the foregoing, any
failure by Green Mountain to make the payments specified in Sections
8.1 and 8.2 on the dates set forth therein shall constitute a material
breach of this Agreement.
9. Termination.
-----------
9.1 Term. This Agreement shall commence upon the Effective Date and,
----
unless terminated as provided herein, shall remain in effect for the
Term.
9.2 Termination by Either Party with Cause. This Agreement may be
--------------------------------------
terminated at any time
***Confidential treatment has been requested for the redacted portions. The
confidential redacted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE>
by either party: (i) immediately upon written notice if the other
party: (a) files a petition in bankruptcy; or (b) makes an assignment
for the benefit of its creditors; or (ii) thirty (30) days after
written notice to the other party of such other party's breach of any
of its obligations under this Agreement in any material respect (ten
(10) days in the case of a failure to pay), which breach is not
remedied within such notice period. In the event that Yahoo provides a
notice of termination under clause (ii) above, Yahoo shall have the
right to suspend its performance under this Agreement for the notice
period unless and until the breach is fully remedied by Green Mountain
prior to the expiration of the notice period.
9.3 Survival. The provisions of Sections 7.3, 8, 10-14, and this 9.3
--------
shall survive expiration or termination of this Agreement.
10. Confidential Information, Publicity, Premier Merchant Status.
------------------------------------------------------------
10.1 Terms and Conditions. The terms and conditions of this Agreement, all
--------------------
discussions pertaining to or leading to this Agreement, and all
information disclosed pursuant to this Agreement shall be considered
confidential and the parties acknowledge and agree to the terms of the
Mutual Nondisclosure Agreement attached hereto as Exhibit C with
---------
respect to the use and disclosure of such confidential information.
Neither party shall make any public announcement regarding the
existence of this Agreement without the other party's prior written
approval and consent, unless required by law or government regulation
but even then only after reasonable notice to the other party.
10.2 Publicity. Any and all publicity relating to this Agreement and
---------
subsequent transactions between Yahoo and Green Mountain and the
method of its release shall be approved in advance of the release by
both Yahoo and Green Mountain.
10.3 Premier Merchant Status. This advertising and promotion program
-----------------------
shall be deemed one of Yahoo's "Premier Merchant" programs, a
designation available only to Yahoo's largest marketing partners (a
"Premier Merchant"). As such, an Account Manager in Yahoo's business
development group shall be responsible for managing this relationship.
Further, subject to Section 10.2, the parties shall be permitted to
publicly refer to this relationship as a "Premier Merchant"
relationship and to Green Mountain as Yahoo's "Premier Merchant" for
consumer energy. Additionally, Green Mountain shall have access to
data and information typically available to Yahoo's "Premier
Merchants."
10.4 User Data. All information and data provided to Yahoo by users of the
---------
Yahoo Properties or otherwise collected by Yahoo relating to user
activity on the Yahoo Properties shall be retained by and owned solely
by Yahoo.
10.5 Privacy of User Information. Green Mountain shall ensure that all
---------------------------
information provided by users of the Green Mountain Site is
maintained, accessed and transmitted in a secure environment and in
compliance with security specifications employed through the use of
SSL or similarly appropriate technology. Green Mountain
<PAGE>
shall provide a link to its policy regarding the protection of user
data on those pages of the Green Mountain Site where the user is
requested to provide personal or financial information.
11. Indemnification.
---------------
11.1 Green Mountain, at its own expense, will indemnify, defend and hold
harmless Yahoo and its employees, representatives, agents and
affiliates, against any claim, suit, action, or other proceeding
brought against Yahoo based on or arising from a claim any Green
Mountain trademark, service mark or other Green Mountain brand
feature, any material, product or service produced, distributed,
offered or provided by Green Mountain, or any material presented on
the Green Mountain Site, infringes in any manner any copyright,
patent, trademark, trade secret or any other intellectual property
right of any third party, is or contains any material or information
that is obscene, defamatory, libelous, slanderous, or that violates
any law or regulation, or that otherwise violates any rights of any
person or entity, including, without limitation, rights of publicity,
privacy or personality, or has otherwise resulted in any consumer
fraud, product liability, tort, breach of contract, injury, damage or
harm of any kind to any third party; provided, however, that in any
such case: (x) Yahoo provides Green Mountain with prompt notice of any
such claim; (y) Yahoo permits Green Mountain to assume and control the
defense of such action upon Green Mountain's written notice to Yahoo
of its intention to indemnify; and (z) upon Green Mountain's written
request, and at no expense to Yahoo, Yahoo will provide to Green
Mountain all available information and assistance necessary for Green
Mountain to defend such claim. Green Mountain will not enter into any
settlement or compromise of any such claim, which settlement or
compromise would result in any liability to Yahoo, without Yahoo's
prior written consent, which shall not unreasonably be withheld. Green
Mountain will pay any and all costs, damages, and expenses, including,
but not limited to, reasonable attorneys' fees and costs awarded
against or otherwise incurred by Yahoo in connection with or arising
from any such claim, suit, action or proceeding.
11.2 Yahoo, at its own expense, will indemnify, defend and hold harmless
Green Mountain and its employees, representatives, agents and
affiliates, against any claim, suit, action, or other proceeding
brought against Green Mountain based on or arising from a claim that
***; provided, however, that in any such case: (x) Green Mountain
provides Yahoo with prompt notice of any such claim; (y) Green
Mountain permits Yahoo to assume and control the defense of such
action *** and (z) upon Yahoo's written request, *** Green Mountain,
Green Mountain will provide to Yahoo all available information and
assistance necessary for Yahoo to defend such claim. Yahoo will not
enter into any settlement or compromise of any such claim, which
settlement or compromise
***Confidential treatment has been requested for the redacted portions. The
confidential redacted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE>
would result in any liability to Green Mountain, without Green
Mountain's prior written consent, which shall not unreasonably be
withheld. Yahoo will pay any and all costs, damages, and expenses,
including, but not limited to, reasonable attorneys' fees and costs
awarded against or otherwise incurred by Green Mountain in connection
with or arising from any such claim, suit, action or proceeding.
12. Limitation of Liability.
-----------------------
12.1 EXCEPT AS PROVIDED IN SECTION 11, UNDER NO CIRCUMSTANCES SHALL GREEN
MOUNTAIN, YAHOO, OR ANY OF THEIR RESPECTIVE AFFILIATES BE LIABLE TO
THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
EXEMPLARY DAMAGES ARISING FROM THIS AGREEMENT, EVEN IF THAT PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, SUCH AS, BUT NOT
LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS.
13. Insurance.
---------
13.1 Green Mountain agrees that it will maintain insurance with a carrier
that is reasonably acceptable to Yahoo and with coverage for
commercial general liability and errors and omissions of at least one
million dollars per occurrence. Green Mountain will name Yahoo as an
additional insured on such insurance and will provide evidence of such
insurance to Yahoo within ten (10) days of the Effective Date. Such
insurance policy shall not be cancelled or modified without Yahoo's
prior written consent.
14. General Provisions.
------------------
14.1 Independent Contractors. It is the intention of Yahoo and Green
-----------------------
Mountain that Yahoo and Green Mountain are, and shall be deemed to be,
independent contractors with respect to the subject matter of this
Agreement, and nothing contained in this Agreement shall be deemed or
construed in any manner whatsoever as creating any partnership, joint
venture, employment, agency, fiduciary or other similar relationship
between Yahoo and Green Mountain.
14.2 Entire Agreement. This Agreement, together with all Exhibits hereto,
----------------
represents the entire agreement between Yahoo and Green Mountain with
respect to the subject matter hereof and thereof and shall supersede
all prior agreements and communications of the parties, oral or
written, including without limitation the Letter of Intent executed on
or about March 16, 1999, between Yahoo and Green Mountain.
14.3 Amendment and Waiver. No amendment to, or waiver of, any provision
--------------------
of this Agreement shall be effective unless in writing and signed by
both parties. The waiver by any party of any breach or default shall
not constitute a waiver of any different or subsequent breach or
default.
14.4 Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of California without regard to
the conflicts of laws principles thereof.
<PAGE>
14.5 Successors and Assigns. Neither party shall assign its rights or
----------------------
obligations under this Agreement without the prior written consent of
the other party, which shall not unreasonably be withheld or delayed.
Notwithstanding the foregoing, either party may assign this Agreement
to an entity who acquires substantially all of the stock or assets of
a party to this Agreement; provided that consent will be required in
the event that the non-assigning party reasonably determines that the
assignee will not have sufficient capital or assets to perform its
obligations hereunder, or that the assignee is a direct competitor of
the non-assigning party. All terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto
and their respective permitted transferees, successors and assigns.
14.6 Force Majeure. Neither party shall be liable for failure to perform
-------------
or delay in performing any obligation (other than the payment of
money) under this Agreement if such failure or delay is due to fire,
flood, earthquake, strike, war (declared or undeclared), embargo,
blockade, legal prohibition, governmental action, riot, insurrection,
damage, destruction or any other similar cause beyond the control of
such party; provided that the other party may suspend performance
during such period.
14.7 Notices. All notices, requests and other communications called for
-------
by this agreement shall be deemed to have been given immediately if
made by facsimile or Electronic mail (confirmed by concurrent written
notice sent via overnight courier for delivery by the next business
day), if to Yahoo at 3420 Central Expressway, Santa Clara, CA 95051,
Fax: (408) 731-3301 Attention: Vice President (e-mail: ellen@yahoo-
inc.com), with a copy to its General Counsel (e-mail: jplace@yahoo-
inc.com), and if to Green Mountain at the physical and Electronic mail
addresses set forth on the signature page of this Agreement with a
copy to its General Counsel (email: [email protected]), or to
such other addresses as either party shall specify to the other.
Notice by any other means shall be deemed made when actually received
by the party to which notice is provided.
14.8 Severability. If any provision of this Agreement is held to be
------------
invalid, illegal or unenforceable for any reason, such invalidity,
illegality or unenforceability shall not effect any other provisions
of this Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained
herein.
14.9 Sole Responsibility. Green Mountain will remain solely responsible
-------------------
for the operation of the Green Mountain Site, and Yahoo will remain
solely responsible for the operation of the Yahoo Properties. Each
party: (a) acknowledges that the Green Mountain Site and the Yahoo
Properties may be subject to temporary shutdowns due to causes beyond
the operating party's reasonable control; and (b) subject to the terms
of this Agreement, retains sole right and control over the
programming, content and conduct of transactions over its respective
Internet-based service.
<PAGE>
14.10 Counterparts. This Agreement may be executed in two counterparts,
------------
both of which taken together shall constitute a single instrument.
Execution and delivery of this Agreement may be evidenced by
facsimile transmission.
14.11 Authority. Each of Yahoo and Green Mountain represents and
---------
warrants that the negotiation and entry of this Agreement will not
violate, conflict with, interfere with, result in a breach of, or
constitute a default under any other agreement to which they are a
party.
14.12 Attorneys Fees. The prevailing party in any action to enforce this
--------------
Agreement shall be entitled to reimbursement of its expenses,
including reasonable attorneys' fees.
[Signature page follows]
<PAGE>
This Advertising and Promotion Agreement has been executed by the duly
authorized representatives of the parties, effective as of the Effective Date.
YAHOO! INC. GREEN MOUNTAIN ENERGY RESOURCES, L.L.C.
By: /s/ Ellen Siminoff By: /s/ Kevin W. Hartley
Name: Ellen Siminoff Name: Kevin W. Hartley
Title: Vice President, Business Title: Chief Marketing Officer
Development
Attn: VP, Business Development
3420 Central Expressway
Santa Clara, CA 95051
Tel.: (408) 731-3300 Tel: 802.846.6130
Fax: (408) 731-3302 Fax: 802.846.6102
e-mail: [email protected] e-mail: [email protected]
<PAGE>
EXHIBIT A
[Screen Shots of Green Mountain Links]
<PAGE>
EXHIBIT B
Wire Transfer Instructions
Yahoo's Bank Information:
Institution Name: ***
Institution Address: ***
ABA: ***
Beneficiary Name: Yahoo! Inc.
Beneficiary Account Number: ***
***Confidential treatment has been requested for the redacted portions. The
confidential redacted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE>
EXHIBIT C
MUTUAL NONDISCLOSURE AGREEMENT TERMS
1. "Confidential Information" is that confidential, proprietary, and
trade secret information being disclosed by the disclosing party pursuant to
this Agreement.
2. Except as set forth in this Section 2, all Confidential Information
shall be in tangible form and shall be marked as Confidential or proprietary
information of the disclosing party. If the Confidential Information is
disclosed orally or visually, it shall be identified as such at the time of
disclosure and confirmed in a writing to the recipient within thirty (30) days
of such disclosure.
3. Each of the parties agrees that it will not make use of, disseminate,
or in any way disclose any Confidential Information of the other party to any
person, firm or business, except to the extent necessary for negotiations,
discussions, and consultations with personnel or authorized representatives of
the other party and any purpose the other party may hereafter authorize in
writing. Each of the parties agrees that it shall disclose Confidential
Information of the other party only to those of its employees who need to know
such information and who have previously agreed, either as a condition to
employment or in order to obtain the Confidential Information, to be bound by
terms and conditions substantially similar to those of this Agreement.
4. There shall be no liability for disclosure or use of Confidential
Information which is (a) in the public domain through no fault of the receiving
party (b) rightfully received from a third party without any obligation of
confidentiality, (c) rightfully known to the receiving party without any
limitation on use or disclosure prior to its receipt from the disclosing party,
(d) independently developed by the receiving party (e) generally made available
to third parties without any restriction on disclosure, or (f) communicated in
response to a valid order by a court or other governmental body, as otherwise
required by law or governmental regulation, or as necessary to establish the
rights of either party under this Agreement (provided that the party so
disclosing has provided the other party with a reasonable opportunity to seek
protective legal treatment for such Confidential Information).
5. "Residual Information" shall mean any Confidential Information of the
disclosing party which may be retained in intangible form in the minds of those
individuals of the receiving party who have had proper access to such
Confidential Information. Notwithstanding anything else in this Agreement, the
receiving party shall be free to use any Residual Information for any purpose
whatsoever, including, without limitation, the development of its own products,
or business, provided that such party shall not be entitled to disclose Residual
Information to any third parties unless such disclosure is in the course of, or
as part of, any disclosure of its own products or business or their development.
6. Each of the parties agrees that it shall treat all Confidential
Information of the other party with the same degree of care as it accords to its
own Confidential Information, and
<PAGE>
each of the parties represents that it exercises reasonable care to protect its
own Confidential Information.
7. Each of the parties agrees that it will not modify, reverse engineer,
decompile, create other works from, or disassemble any software programs
contained in the Confidential Information of the other party unless otherwise
specified in writing by the disclosing party.
8. All materials (including, without limitation, documents, drawings,
models, apparatus, sketches, designs and lists) furnished to one party by the
other, and which are designated in writing to be the property of such party,
shall remain the property of such party and shall be returned to it promptly at
its request, together with any copies thereof.
9. This Agreement shall govern all communications between the parties
that are made during the period from the effective date of this Agreement to the
date on which either party receives from the other written notice that
subsequent communications shall not be so governed, provided, however, that each
party's obligations under Sections 2 and 3 with respect to Confidential
Information of the other party which it has previously received shall continue
unless and until such Confidential Information falls within Sections 4 or 5.
Neither party shall communicate any information to the other in violation of the
proprietary rights of any third party. Neither party acquires any licenses
under any intellectual property rights of the other party under this Agreement.
<PAGE>
EXHIBIT 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
June 24, 1999
