<PAGE>
As filed with the Securities and Exchange Commission on March 29, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
GREENMOUNTAIN.COM COMPANY
(Exact name of Registrant as specified in its charter)
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Delaware 5961 03-0360441
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
55 Green Mountain Drive
South Burlington, Vermont 05407
(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 05407
(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
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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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title Of Each Class Of Proposed Maximum Amount Of
Securities To Be Registered Aggregate Offering Price(/1/) Registration Fee
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<S> <C> <C>
Common Stock, $0.01 par value................ $600,000,000 $166,800
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</TABLE>
(/1/Estimated)solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
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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--MARCH 29, 1999
PROSPECTUS
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Shares
[GreenMountain.com 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.
GreenMountain.com uses the Internet and other media to market "green" consumer
products and has become the leading retailer of green electricity to
residential customers in deregulated utility markets within the United States.
GreenMountain.com's mission is to make Green Mountain the leading brand for
environmentally friendly products.
It is anticipated that the public offering price will be between $ and $ per
share. We will file an application to include the shares of GreenMountain.com
in The Nasdaq Stock Market's 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 to for factors that should be considered 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, under certain circumstances, purchase up to additional
shares from GreenMountain.com at the public offering price, less underwriting
discounts and commissions. Delivery and payment for the shares will be on
, 1999.
Prudential Securities
, 1999
<PAGE>
[Description of graphics to come.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 8
Use of Proceeds..................... 16
Dividend Policy..................... 16
Capitalization...................... 17
Dilution............................ 18
Selected Financial Information...... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
Business............................ 27
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Environmental Advisory Board.......................................... 43
Management............................................................ 44
Certain Transactions.................................................. 54
Principal Stockholders................................................ 59
Description of Capital Stock.......................................... 59
Shares Eligible for Future Sale....................................... 62
Underwriting.......................................................... 64
Legal Matters......................................................... 65
Experts............................................................... 65
Additional Information................................................ 66
Index to Financial Statements......................................... F-1
</TABLE>
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The terms "GreenMountain.com," "we," "our" and "us" refer to GreenMountain.com
Company and its predecessor, Green Mountain Energy Resources L.L.C., unless the
context suggests otherwise. The term "you" refers to a prospective investor.
Unless otherwise indicated, all information in this prospectus reflects our
conversion from a limited liability company to a corporation and the related
conversion of each common unit of the limited liability company into 2.5 shares
of common stock of the corporation, all of which will occur prior to the
closing of this offering. See "Certain Transactions--Reorganization
Transaction."
Our Web address is www.greenmountain.com. The information on our Web site is
not part of this prospectus.
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, Know Your Power FestivalSM,
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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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 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.
- --------------------------------------------------------------------------------
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.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
you should consider before investing in GreenMountain.com. Investors should
read the entire prospectus carefully.
GreenMountain.com
GreenMountain.com uses the Internet and other media to market green consumer
products and has become the leading retailer of green electricity to
residential customers in deregulated utility markets within the United States.
Our Web site--www.greenmountain.com--will use the rich interactive resources of
the Internet to make it easy and appealing for people to use everyday purchases
as agents of change for a cleaner and healthier environment. Our mission is to
make Green Mountain the leading brand for green products.
"Environmentally friendly" or "green" products are those products that have
a less harmful effect on the environment than other products having a similar
use. 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. Consumers today are more environmentally aware
than typical consumers 20 years ago, and surveys consistently show increasing
majorities of the public support renewable energy over other energy
alternatives. 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 the $200 billion electric utility industry--the largest
source of industrial air pollution in the United States--is providing
environmentally conscious consumers with a choice of electricity supplier and
generation source. Four states have implemented competition on a statewide
basis, 14 states have taken formal action to deregulate, and we expect that a
total of 29 states will have implemented electricity deregulation by the end of
2003. We are currently offering green electricity products--electricity
produced from renewable and other environmentally preferable generation
sources--in Pennsylvania and California, and we expect to offer environmentally
friendly electricity products in each other deregulated electricity market in
which we can compete effectively.
The Internet is emerging as the most significant global communications
medium, 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.
Jupiter Communications estimates that the number of Web users in the United
States will grow from 76.6 million at the end of 1998 to 131.2 million by the
end of 2002 and that the value of goods and services purchased on the Internet
in the United States will grow from $7.1 billion in 1998 to $41.1 billion in
2002. We believe that by becoming the dominant Internet destination site for
people who care about the environment, we can capitalize on this opportunity to
make Green Mountain the leading brand for green products.
We believe in the interaction of education and free markets. Informed
consumers can use the power of their market decisions as forces for positive
environmental change. We refer to this concept as "g*commerce." We intend to
use the broad reach of the Internet to aggregate the g*commerce impact of a
large online community. We believe that the power of this community to effect
environmental change will be significant.
We are the first and only company to offer environmentally friendly
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 to position Green Mountain as the best
known and most trusted environmental brand.
3
<PAGE>
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. We expect to
incur net losses in 1999 and 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 05407. Our telephone
number is 802.846.6100. The information on our Web site is not part of this
prospectus.
Our Business Strategy
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 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 developed to provide consumers with easy access to a
broad selection of green products and in-depth, educational environmental
content through a real-time interactive medium. Our focus 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 aggregate
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.
Our Management Team
Our management team is led by Sam Wyly, our Chairman. Mr. Wyly, a Dallas,
Texas-based entrepreneur, has created and managed several public and private
companies. He co-founded Sterling Software, a New York Stock Exchange-listed
supplier of software products and services, in 1981 and 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 controlled by the Wyly family have invested more
than $70 million in our company.
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.
4
<PAGE>
Our Environmental Commitment
We stake our reputation on the environmental soundness of our green
products. We view our environmental integrity as one of our most important
assets.
We believe strongly in our g*commerce vision. We intend to closely monitor
our effect on the environment and consider it an essential measure of our
success. We have established the management position of Chief Environmental
Integrity Officer, and a committee of our board of directors will be
responsible for reviewing our adherence to our environmental principles.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered by shares
GreenMountain.com................
Total shares outstanding after shares (1)
this offering....................
Use of proceeds................... To provide working capital for brand
development and marketing, product
development, enhancements to our Web site
and technology systems, expansion of our
green electricity business into new
deregulated markets, environmental
programs, potential strategic acquisitions
and investments and other general corporate
purposes
Proposed Nasdaq National Market GMTN
symbol...........................
</TABLE>
- --------
(1) Does not include up to shares that the underwriters may purchase if they
exercise their over-allotment option and does not include shares of
common stock issuable upon exercise of options and warrants outstanding as
of , 1999 (assuming our conversion from a limited liability company to
a corporation had occurred as of that date).
Risk Factors
You should consider the risk factors before investing in GreenMountain.com's
common stock and the impact from various events which could adversely affect
its business. See "Risk Factors."
6
<PAGE>
Summary Financial Data
The following table summarizes our statement of operations and our balance
sheet as of December 31, 1998. See our financial statements and the notes to
those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
February 26, 1997
(Inception) to Year Ended
December 31, 1997 December 31, 1998
------------------ ------------------
(In thousands, except per share data)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $ -- $ 1,531
Cost of sales............... -- 1,098
Total operating expenses.... 13,905 46,465
Operating loss.............. (13,905) (46,032)
Net loss.................... (13,862) (46,039)
================== ==================
Basic and diluted loss per
common share (1)............ $ (26.17) $ (7.27)
================== ==================
Basic and diluted weighted
average common shares
outstanding (1)............. 530 6,329
================== ==================
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1998
-------------------------------------
As Further
Actual As Adjusted (2) Adjusted (3)
------- --------------- ------------
(In thousands)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash...................................... $ 5,654 $40,856 $
Restricted cash........................... 2,920 2,920
Total assets.............................. 11,058 46,260
Total liabilities......................... 11,959 11,959
Stockholders' equity...................... (901) 34,301
</TABLE>
- --------
(1) Reflects our conversion from a limited liability company to a corporation,
which will occur prior to the closing of this offering, as if that
conversion had occurred at the beginning of each period indicated.
(2) As adjusted to reflect (a) sales of 2,515,500 limited liability company
common units that occurred after December 31, 1998 and (b) the conversion
of those units into 6,288,750 shares of common stock in our conversion from
a limited liability company to a corporation, as if those transactions had
occurred as of December 31, 1998.
(3) As further adjusted to reflect the sale of the shares of common stock
offered in this offering at an assumed initial public offering price of $
per share, after deducting underwriting discounts and commissions and
estimated offering expenses, as if this offering had been completed as of
December 31, 1998. See "Use of Proceeds" and "Capitalization."
7
<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 Unproven. Our business plan is novel and without
established precedent. It relies on three broad trends:
. The willingness of consumers to use economic decisions to address
environmental concerns;
. Increasing use of the Internet for commerce transactions; and
. The movement from government controls to free market competition in the
electric utility industry.
Our success will depend upon the continuation of these trends. Our success also
depends on our ability to implement the primary components of our business
strategy. To date, our business has consisted of the sale of green electricity
products in Pennsylvania and California, with only a small portion of revenues
derived from sales made over the Internet. To be successful, we must:
. Increase awareness of the Green Mountain brand;
. Aggregate a broad selection of green products;
. Redesign our Web site to accommodate and support expanded product
offerings; and
. Create an online community of people with shared concerns about the
environment.
Our success is also dependent on a number of other factors, including:
. Our ability to attract and retain satisfied customers;
. Interest of consumers in environmentally friendly products;
. The timing and form of deregulation of the electric utility industry;
. Our ability to secure competitively priced supply from environmentally
preferable sources;
. New competitors and new products introduced by our competitors; and
. A high level of Internet usage.
The novel interaction of these features presents a high degree of risk. Many
of the factors upon which our success depends are outside our control. We
cannot assure you that we will be successful or that your investment in our
stock will be profitable.
We Have A Very Limited Operating History. We commenced active operations in
August 1997 as a retail marketer of green electricity products and accelerated
a substantial expansion of our business strategy in late 1998. We have a
limited operating history upon which an evaluation of our company, our current
business and our prospects can be based. Our business model is evolving and is
particularly reliant on expanded Internet
8
<PAGE>
sales. An investor in our common stock must consider the risks, expenses and
difficulties 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. We cannot assure you that our business strategy will be
successful. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Our Strategy."
We Have Incurred Losses And We Anticipate Losses Will Continue. 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. 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."
We Must Position The Green Mountain Brand And Maintain Our Reputation. In
order to succeed, we believe we must position the Green Mountain name as the
leading environmental brand and maintain our reputation as an environmentally
oriented company, particularly in the Internet market and in the deregulated
electricity market 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 expenditures. We cannot assure you that our
brand promotion activities will result in increased revenues or that any such
revenues will offset these expenditures. State 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. We cannot assure you that these challenges will not
adversely affect our reputation. See "Business--Our Strategy."
We Must Broaden Our Product Offerings. Our revenues have been based solely on
green electricity sales in Pennsylvania and California. We must broaden
substantially the array of green products that we offer without geographic
limitation. We cannot assure you that we will be able to do so. Our experience
in marketing green electricity may not be effective in marketing other green
products. Moreover, the commercial availability of certain products that we
hope to offer (such as fuel cells for homes, offices and cars) is dependent on
technological advances. 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 products or that any of our products will achieve market acceptance.
See "Business--Our Strategy."
We Must Develop Our Web Site And Implement Ongoing Improvements To Our Web
Site In The Face Of Rapid Technological Change. Our success will depend on our
ability to design, develop and maintain a state-of-the-art Web site. The
development of Web sites entails significant technical and business risks and
requires substantial expenditures and lead time. We depend 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. We cannot assure you that our new Web site will be launched by
October 1, 1999 or that it will be successful when launched. We also cannot
assure you that we will be able to implement the ongoing improvements that we
believe are required for the continued success of a Web site, or that we will
in fact attract customers. To date, we have generated only a small portion of
our revenue from our Web site.
9
<PAGE>
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 business. We cannot assure you that we will be successful in this
regard. See "Business--Our Strategy."
We Must Develop And Maintain Strategic Web Site Relationships. We believe
that in order to attract significant traffic to our Web site we will need to
establish and maintain relationships with Internet portals and high-traffic Web
sites that will carry links to our new Web site and with content providers that
will provide our Web site with content that appeals to consumers who are
concerned about the environment. Intense competition exists for these types of
relationships and we may 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.
We Face Risks Related To The Deregulation Process. We believe that utility
deregulation in the United States will continue on a state-by-state basis. To
date, however, only four states have adopted state-wide deregulation. 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 successfully in any particular
deregulated market will depend on the specific features 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. 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. Our operating results may
fluctuate significantly from quarter-to-quarter and year-to-year. Our limited
operating history, in combination with substantial 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
upon as an indication of future performance.
Our revenues and operating results may vary significantly from quarter-to-
quarter or year-to-year due to a number of factors, including factors discussed
under other captions under "Risk Factors."
Our limited operating history, together with our expanded business strategy,
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.
10
<PAGE>
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."
We Face Intense Competition. 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 aggregate a broad selection of green products.
See "Business--Our Competitive Position."
We Depend On Outside Service Providers. We rely on third-party service
providers for certain key functions, including:
. Web site development;
. Mass media advertising;
. Direct mail marketing;
. Inbound and outbound telephone marketing;
. Billing and customer care; and
. Various 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. See "Business--
Marketing, Sales and Customer Service."
We Are Dependent On Third Parties To Supply The Electricity Products We
Sell. 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, suppliers provide electricity for a period (usually one year) that
matches the aggregate customer requirements that are assigned to them. 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 commodity prices and customer usage
by using these contracts, but cannot assure you that price fluctuations will
not adversely affect our business. In addition, we may be unable to obtain
supply contracts for our future needs or to extend or replace our existing
supply contracts, and we cannot assure you that any future supply contracts
will reduce
11
<PAGE>
risk relating to price and customer usage to a similar extent. Moreover,
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."
We Depend Upon Public Environmental Consciousness. Our success will depend
upon 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.
We Must Manage Potential Rapid Growth. We have rapidly and significantly
expanded our operations, and future expansion will be required in order for us
to realize our business objectives. 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.
We Must Integrate And Retain Senior Management. Our success will depend on
our ability to grow, integrate and retain an able management team. We recently
hired a new Chief Executive Officer, President and Chief Financial Officer. We
cannot assure you that we will successfully integrate new arrivals with our
existing staff or that we will retain the services of key personnel.
We Must Protect Our Intellectual Property. 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. See
"Business--The Protection of Our Intellectual Property."
We Face Year 2000 Risks. 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."
We Could Face Claims Of Our Infringement On The Intellectual Property Rights
Of Others. 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. Defense against claims or the inability to obtain
or maintain the use of licenses or other technology could adversely affect our
business.
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<PAGE>
RISKS RELATED TO THE INTERNET AND ONLINE COMMERCE ASPECTS OF OUR BUSINESS
Dependence On Continued Growth Of Online Commerce. Our future success is
dependent upon 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. 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 Not Be Able To Acquire Or Maintain An Effective Web Address. We
currently hold the domain name "greenmountain.com," as well as various other
related names. We may not be able to prevent third parties from acquiring Web
addresses that are similar to ours. 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.
Our Technology Systems May Fail Or Perform Inadequately. Our success 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. We do not intend to have redundant systems and
have not adopted a formal disaster recovery plan. 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 Online Commerce. 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 significantly limit their use of the Internet to
purchase products because of security concerns. 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.
We Face Potential Liability For Information Displayed On Our Web Site. 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.
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<PAGE>
We Face Potential Liability For Products Sold Through Our Web Site. We will
sell products produced by others under the Green Mountain brand. We also plan
to enter into relationships with others to make their green products available
on our Web site. These sales and relationships may subject us to liabilities,
including consumer product liabilities. While we intend to require our
suppliers and other parties in these relationships to indemnify us against
those types of liabilities, available indemnification may not be adequate. We
currently have product liability insurance coverage in the amount of $35
million, with a $200,000 deductible, covering sales of electricity. Our
liability insurance, including any additional product liability insurance that
we obtain to cover sales of other products, may not adequately protect us
against these types of liabilities.
Government Regulation Of The Internet And Online Commerce Is Still
Developing. Certain existing laws or regulations 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.
RISKS RELATED TO THIS OFFERING
Certain Of Our Existing Stockholders Will Exercise Significant Control. Our
directors and officers and their affiliates will, in the aggregate,
beneficially own approximately % of the outstanding shares of
GreenMountain.com common stock upon the closing of this offering ( % if the
underwriters exercise their over-allotment option in full). As a result, 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. 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 representative 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. 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. 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. After this offering, shares of common stock
will be outstanding ( shares if the underwriters exercise their over-allotment
option in full). Of these shares, the shares sold in this offering ( shares
if the underwriters exercise their over-allotment option in full) 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). Our officers, directors and certain 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
14
<PAGE>
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. Upon expiration of this lock-up period, the shares
owned by these persons prior to completion of this offering may be sold into
the public market without registration under the Securities Act in compliance
with the volume limitations and other restrictions of Rule 144 under the
Securities Act. After the date of this prospectus, we intend to file a
registration statement under the Securities Act to register all shares of
common stock issuable upon the exercise of outstanding stock options and
reserved for issuance under our 1999 Stock Option Plan as of the date of this
prospectus. This registration statement is expected to become effective
immediately upon filing, and subject to the vesting requirements and exercise
of the related options (as well as the terms of the lock-up agreements), shares
covered by this registration statement will be eligible for sale in the public
markets. 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 $ per share (assuming an initial public
offering price of $ per share) in the net tangible book value per share of
common stock from the price you paid. The exercise prices of most of our
outstanding options are significantly 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. 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. See "Use of Proceeds."
There Exist Certain Anti-Takeover Provisions. 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."
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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 a public offering price of $ per
share, will be $ ($ if the underwriters exercise their over-allotment
option in full), after deducting underwriting discounts and commissions and
estimated offering expenses.
The principal purposes of this offering are to provide working capital for
brand development and marketing, product development, enhancements to our Web
site and technology systems, expansion of our green electricity business into
new deregulated markets, environmental programs and other general corporate
purposes. In addition, we may use a portion of the net proceeds to acquire or
invest in strategic businesses, technologies, services or products; however, we
currently have no commitments or agreements in this regard.
As of the date of this prospectus, we cannot specify with certainty 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."
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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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998.
Our capitalization is presented:
. on an actual basis, but reflecting our conversion from a limited
liability company to a corporation, which will occur prior to the
closing of this offering, as if that conversion had occurred as of
December 31, 1998;
. as adjusted to reflect (1) sales of 2,515,500 limited liability company
common units after December 31, 1998 and (2) the conversion of those
units into 6,288,750 shares of common stock in connection with our
conversion from a limited liability company to a corporation as
described above, as if those transactions had occurred as of December
31, 1998; and
. as further adjusted to reflect the sale of the shares of common stock
offered in this offering at an assumed initial public offering price of
$ per share, after deducting the underwriting discounts and commissions
and estimated offering expenses, as if this offering had been completed
as of December 31, 1998. 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 December 31, 1998
-------------------------------
As Further
Actual As Adjusted Adjusted
------- ----------- ----------
(In thousands)
<S> <C> <C> <C>
Cash........................................... $ 5,654 $40,856 $
======= ======= ====
Long-term obligations.......................... $ -- $ -- $
Stockholders' equity:
Common stock, $.01 par value, 100,000,000
shares authorized; 15,000,000 shares issued
(actual); 21,288,750 shares issued (as
adjusted); shares issued (as further
adjusted)(1)................................. 150 213
Additional paid-in capital.................... 59,850 100,097
Notes receivable.............................. -- (5,108) --
Accumulated deficit........................... (59,901) (59,901)
Treasury stock................................ (1,000) (1,000)
------- ------- ----
Total stockholders' equity.................... (901) 34,301
------- ------- ----
Total capitalization.......................... $ (901) $34,301 $
======= ======= ====
</TABLE>
- --------
(1) Excludes 86,220 shares issuable upon exercise of options and warrants
outstanding as of December 31, 1998 (assuming our conversion from a
limited liability company to a corporation had occurred as of the date).
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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 December 31, 1998, our net tangible book value was $(901,079) or
$(0.06) per share on an actual basis (but reflecting our conversion from
a limited liability company to a corporation, which will occur prior to
the closing of this offering, as if that conversion had occurred as of
December 31, 1998).
. After giving effect to (1) sales of 2,515,500 common units of the
limited liability company after December 31, 1998 and (2) the conversion
of those units into 6,288,750 shares of common stock in connection with
our conversion from a limited liability company to a corporation as
described above, as if those transactions had occurred as of December
31, 1998, our pro forma net tangible book value on December 31, 1998
would have been $34,300,671 or $1.61 per share. See "Certain
Transactions--Reorganization Transaction."
. After further giving effect to the sale of the shares of common stock
offered in this offering at an assumed initial public offering price of
$ per share and after deducting the underwriting discounts and
commissions and estimated offering expenses, as if this offering had
been completed as of December 31, 1998, our pro forma net tangible book
value on December 31, 1998 would have been $ or $ per share.
This represents an immediate increase in the net tangible book value of
approximately $ per share to our existing stockholders and an immediate and
substantial dilution of $ 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................................ $
Pro forma net tangible book value as of December 31, 1998........... $
Increase attributable to new investors..............................
----
Net tangible book value after this offering..........................
----
Dilution to new investors............................................ $
====
</TABLE>
The following table summarizes, on a pro forma basis, as of December 31,
1998, 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 $ (before the deduction of
underwriting discounts and commissions and estimated offering expenses).
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- --------------------- Price per
Number Percent Amount Percent Share
------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... % % $
New investors...........
------- --------- --------- ---------- ----
Total................. 100.0% $ 100.0%
======= ========= ========= ==========
</TABLE>
The discussion and table above assumes no exercise of any stock options or
warrants outstanding as of December 31, 1998. As of December 31, 1998, there
were outstanding options and warrants exercisable to purchase 86,220 shares of
common stock at an exercise price of $90.45 per share (assuming our conversion
from a limited liability company to a corporation had occurred as of that
date).
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<PAGE>
Since December 31, 1998, there have been granted options which upon our
conversion from a limited liability company to a corporation will be
exercisable to purchase shares of common stock at a weighted average
exercise price of $ per share. To the extent any of these options granted
since December 31, 1998 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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<PAGE>
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 February 26, 1997 (inception) through December 31, 1997 and for the
year ended December 31, 1998, and the balance sheet data at December 31, 1997
and 1998, are derived from our audited 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, which will occur
prior to the closing of this offering, as if that conversion had occurred as of
the beginning of the period indicated. See "Certain Transactions--
Reorganization Transaction." The historical results presented here are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
February 26, 1997
(Inception) to Year Ended
December 31, 1997 December 31, 1998
----------------- -----------------
(In thousands, except per share
data)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ -- $ 1,531
Cost of sales............................. -- 1,098
Operating Expenses:
Customer and regional operations.......... 982 4,834
Sales and marketing....................... 4,337 33,010
General and administrative................ 1,742 4,226
Technology and development................ 2,048 2,918
Depreciation and amortization............. 90 768
Development and transaction costs......... 4,706 709
-------- --------
Total operating expenses................. 13,905 46,465
-------- --------
Operating loss............................ (13,905) (46,032)
Interest income (expense), net............ 43 (7)
-------- --------
Net loss.................................. $(13,862) $(46,039)
======== ========
Basic and diluted loss per common share... $ (26.17) $ (7.27)
======== ========
Basic and diluted weighted average common
shares outstanding....................... 530 6,329
======== ========
<CAPTION>
At December 31,
-----------------------------------
1997 1998
----------------- -----------------
(In thousands)
<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................... $ 1,933 $ 5,654
Working capital........................... 141 (2,268)
Total assets.............................. 4,183 11,058
Total liabilities......................... 2,445 11,959
Stockholders' equity...................... 1,738 (901)
</TABLE>
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<PAGE>
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
GreenMountain.com uses the Internet and other media to market green consumer
products and has become the leading retailer of green electricity to
residential customers in deregulated utility markets within the United States.
Our mission is to make Green Mountain the leading brand for green products.
We were formed as a limited liability company in February 1997. Prior to the
closing of this offering, we will convert from a limited liability company to a
corporation. See "Certain Transactions--Reorganization Transaction."
Between August 1997 and December 31, 1998, Green Funding I, L.L.C. (Green
Funding I), an investment vehicle managed by the Wyly family, contributed to us
a total of $60.0 million. In August 1997, Green Mountain Power Corporation
contributed to us indirectly through one of its subsidiaries property,
including intellectual property and contractual rights. In August 1997, Green
Funding I owned 67% of our equity interests and Green Mountain Power
Corporation indirectly owned the other 33%. 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 agreed to pay the subsidiary of
Green Mountain Power Corporation $1.0 million in cash and the remaining equity
interest owned indirectly by Green Mountain Power Corporation was transferred
to us. See "Certain Transactions--Formation of the Business," "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 various outsourcing partners to perform
most of the marketing, sales and customer service functions necessary
for the operation of our business;
. Established relationships with various environmental groups and entered
into affinity marketing programs with some of them;
. Designed and built our Information Network to provide for the efficient
communication of information with and among our various 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;
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. Established supply relationships for Green Mountain SolarSM systems and
commenced marketing them in California; and
. Recruited a management team with substantial expertise in brand
development and marketing, as well as Internet-related technologies.
As of December 31, 1998, we had approximately 21,100 customers in
California. We began marketing electricity products in Pennsylvania in June
1998 and as of December 31, 1998 had approximately 36,000 customers ready to
receive service.
We had 28 employees as of September 1, 1997. As of December 31, 1998, we had
59 employees, including management and staff personnel, and an additional 19
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
Revenues And Cost Of Sales
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:
. Costs associated with increased business development efforts;
. Commencement of billing activity when the California retail electricity
market opened for competition;
. The preparation for commencement of service of customers in Pennsylvania
on January 1, 1999; and
. The increase in regional operating activities within various states
expected to open their electric utility markets for retail competition
in the foreseeable future.
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.
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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 marketing efforts utilize traditional
media (television, radio, print and billboards), direct mail, affinity
programs, Internet, inbound and outbound telemarketing and special events and
promotions. Sales and marketing expense for 1998 includes significant
expenditures in anticipation of the commencement of service in Pennsylvania
effective January 1, 1999.
General And Administrative Expense
General and administrative expense increased $2.5 million from $1.7 million
to $4.2 million from 1997 to 1998. This expense is comprised primarily of
payroll and other expenses relating to our administrative, human resources,
finance, legal and regulatory functions. Much of the increase in 1998 relates
to activities in preparation for expanded Internet marketing and entry into
deregulated electric utility markets. Additionally, the increase partially
reflects the increase in the number of employees needed to accommodate our
growth in 1998.
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
development and operation of our information technology systems. 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 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 (August 1997) to December 31, 1997.
Development And Transaction Costs
Development and transaction 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 start-up and development costs of approximately $4.0 million
contributed indirectly by Green Mountain Power Corporation. 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, resulted 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 have 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 operating agreement. Subsequent to our conversion into a
corporation, we will 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.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $12.3 million for 1997 and $39.9
million for 1998. Net cash used in operating activities was primarily driven by
the net losses of $13.9 million for 1997 and $46.0 million for 1998. Offsetting
these net losses were increases to accrued expenses of $1.4 million for 1997,
$5.3 million for 1998 and increases in accounts payable of $1.0 million for
1997 and $3.3 million for 1998.
Net cash used in investing activities was $1.3 million for 1997 and $0.8
million for 1998, 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.
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 certain
cancelable operating leases. Certain outsourcing agreements have minimum
financial commitments of various amounts and terms. If we are unable to obtain
financing through this offering or otherwise, we will curtail our current
growth plans and we believe the net proceeds of $35.2 million raised through
issuances of equity interests subsequent to December 31, 1998 will be
sufficient to fund our operations at least through 1999. See 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 our existing cash resources, will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for the foreseeable
future. However, 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 all of our electricity supply contracts
are short-term requirements contracts that generally 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 December 31, 1998, 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.
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<PAGE>
YEAR 2000 READINESS DISCLOSURE
State Of Readiness
On January 1, 2000, many currently installed computer systems and software
applications could fail or malfunction because they may not be able 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 in the Year 2000.
We have determined during our initial assessment that our internal corporate
systems, including both hardware and software applications, are Year 2000
ready, with certain exceptions. Those 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 will upgrade our financial and human resource
applications in order to make them Year 2000 ready by the end of the second
quarter of 1999. Overall, we expect to achieve Year 2000 readiness for all of
our corporate financial and human resources systems by the end of the third
quarter of 1999.
We have requested Year 2000 readiness information from our information
technology service providers, outsourcing providers and suppliers. While this
process is not yet complete, based upon responses to date, many of those
information technology service providers, outsourcing providers and suppliers
have indicated that they will be Year 2000 ready in a timely manner. 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 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 retained an outside
consultant to assist with the assessment and in making of our applications Year
2000 ready. We have expensed less than $0.1 million in connection with our Year
2000 readiness efforts since inception through December 31, 1998 and we expect
to incur approximately $0.3 million during 1999. These costs represent work
performed by this consultant to both make our internal systems Year 2000 ready
and to assess the Year 2000 readiness of our information technology service
providers, outsourcing partners and suppliers.
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 power
supply interruptions to our customers or 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 expect to develop our contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness by the end of the third
quarter of 1999.
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
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<PAGE>
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
certain 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 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). We
do not have any derivative instruments at this time; however, such instruments
may be embedded in future electricity contracts.
The American Institute of Certified Public Accountants Statement of Position
(SOP) No. 98-1, Software 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.
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<PAGE>
BUSINESS
OUR MISSION
GreenMountain.com uses the Internet and other media to market green consumer
products and has become the leading retailer of green electricity to
residential customers in deregulated utility markets within the United States.
Our Web site--www.greenmountain.com--will use the rich interactive resources of
the Internet to make it easy and appealing for people to use everyday purchases
as agents of change for a cleaner and healthier environment. Our mission is to
make Green Mountain the leading brand for green 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.
. 62 million Americans live in approximately 60 to 70 metropolitan areas
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 has been 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.
We believe that Americans are more concerned than ever about environmental
problems and are more knowledgeable than ever about green products and
processes. The percentage of the U.S. public that would choose environmental
protection over meeting adequate energy needs increased from 35% in 1973 to 80%
in 1993. We also believe that Americans are increasingly sensitive to the
effect that their individual behavior can have on the environment. These trends
are reflected in the growth of recycling. According to BioCycle Magazine, the
percentage of recycled waste has grown from 8% in 1990 to 28% in 1997, and the
number of community curbside recycling programs has increased from 1,042 at the
end of 1988 to 8,937 at the end of 1997.
[BAR CHART REPRESENTING PERCENTAGE INCREASE
IN WASTE RECYCLED FROM 1990 TO 1997 AND BAR CHART
REPRESENTING PERCENTAGE INCREASE IN CURBSIDE RECYCLING
PROGRAMS FROM 1988 TO 1997 APPEARS HERE]
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 recent Worldwatch publications:
. Atlantic Richfield sees its large holdings of natural gas playing a key
role in the transition from a carbon-based energy economy to one based
on hydrogen.
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<PAGE>
. British Petroleum has committed $1 billion to the development of wind
and solar energy.
. Royal Dutch Shell has announced a $500 million investment in renewable
energy sources.
Another recent Worldwatch publication stated:
. . . [T]here 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.
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 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 prepared by
Roper Starch International 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 the dominant environmental brand.
Deregulation Is Empowering Consumers To Change The Way Electricity Is Made
Deregulation of the $200 billion electric utility industry--the largest
source of industrial air pollution in the United States--is part of a global
trend away from governmental control and toward free markets. Historically, in
the United States regulated electric utilities have provided bundled
electricity service, including the generation, transmission and distribution of
electricity, within exclusive franchise service territories. The wholesale
power sector is largely governed by federal laws and regulations, while the
retail operations of electric utilities are principally regulated on the state
level. Since the passage of federal legislation in 1992, the Federal Energy
Regulatory Commission has implemented measures to facilitate competition in the
wholesale power marketing area. On a state-by-state basis, states have begun to
introduce competition to the retail power sector. As a result of deregulation,
the electric utility industry is changing from one characterized by a single
provider of bundled electricity to one having a number of generators and
electricity marketers. With deregulation, power generation and marketing are
open to competition while distribution and transmission of electricity remain
regulated. Currently, the industry segment in which we compete is retail
marketing and our primary target customers are residential customers.
Deregulation is providing the growing community of informed and
environmentally conscious consumers with a choice of electricity supplier and
of generation source. Because all electricity delivered into the electric power
grid 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 grid. Choice allows 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.
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. Pennsylvania. Pennsylvania's deregulation program has been the most
successful, resulting in the most active electricity retail market in
the United States. By January 1, 1999, the first day that Pennsylvania's
retail electricity market opened for competition, almost 9% of the
households in that state had chosen to switch electricity providers. As
of March 1, 1999, approximately 10% of the households in the
Pennsylvania market had elected to switch from their incumbent
electricity provider. As of March 1, 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. Certain features of California's deregulation program that
are presently applicable make it substantially less favorable to free
market competition than the Pennsylvania program. California's retail
electricity market opened for competition on April 1, 1998. As of March
1, 1999, only 1% of the households in California had chosen to switch
from their incumbent electricity provider. As of March 1, 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.
. Massachusetts. Although the Massachusetts retail electricity market
nominally opened for competition on March 1, 1998, under the
Massachusetts deregulation program competitive retail suppliers are
unable to match the standard rates offered by incumbent electricity
providers. Accordingly, no significant competition has developed in the
residential retail electricity market in Massachusetts.
. Rhode Island. Although Rhode Island's residential retail electricity
market was formally open for competition by July 1998, as in
Massachusetts there has been very little market activity because
competitive electricity suppliers cannot compete with the standard rates
offered by incumbent electricity providers.
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--We Face
Risks Related to the Deregulation Process."
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 (14 STATES AND
THE DISTRICT OF COLUMBIA)
. COMPANIES ORDERED TO FILE RESTRUCTURING PLANS OR ENABLING LEGISLATION
ENACTED (4 STATES)
. COMMISSION OR LEGISLATIVE INVESTIGATION UNDERWAY LIKELY TO LEAD TO A
RESTRUCTURING PLAN (4 STATES)
. AN INFORMATIONAL OR FACT-FINDING STUDY IS UNDERWAY (23 STATES)
. NO SUBSTANTIVE ACTIVITY IS UNDERWAY (3 STATES)
SOURCE: REGULATORY RESEARCH ASSOCIATES, FEBRUARY 16, 1999]
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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.
The Internet And Online Commerce Are Growing
We believe that the Internet is emerging as the most significant global
communications medium. 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 Web users in the world will
grow from 124 million at the end of 1998 to 213 million by the end of 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 services purchased
on the Internet in the United States will grow from $7.1 billion in 1998 to
$41.1 billion in 2002.
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.
THE GREEN MOUNTAIN ADVANTAGE
We believe that a significant opportunity exists for a company to market
green consumer products over the Internet. Our research 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
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Gauge Report, an annual environmental survey conducted by Roper Starch
Worldwide, "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 becoming the dominant Internet destination
site for people who care about the environment, we can capitalize on this
opportunity to make Green Mountain the 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.
We are the leading seller of green electricity to residential customers in
deregulated utility markets within the United States based on number of
households served. In June 1998, we began marketing electricity products in
Pennsylvania, which opened for competition on January 1, 1999. As of February
28, 1999, we had approximately 50,900 customers in Pennsylvania. The Xenergy
1999 Retail Wheeling Multi-Client Study Phase 4 Final Report, prepared by
Applied Marketing Service and Xenergy, 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 has been to concentrate first on northern
California due to its higher concentration of environmentally sensitive
consumers and to increase our efforts in southern California later. As of
February 28, 1999, we had approximately 21,900 customers in California
(approximately 75% of which were in northern California).
[BAR CHART REPRESENTING INCREASE IN CUSTOMER GROWTH FROM JULY 1998 TO FEBRUARY
1999 IN TERMS OF ACTUAL CUSTOMERS BEING SERVED APPEARS HERE]
Market research performed for us by independent third parties indicates that
from November 1998 to January 1999 awareness of our Green Mountain brand name
in Pennsylvania grew from 35% of residential households to more than 60%.
Similar market research indicates that in November 1998, 16% of residential
households in northern California.
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 of the
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<PAGE>
Green Mountain brand through traditional media, principally in states in which
we offer our energy products. We will expand our marketing effort, especially
on the Internet, 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 economic decisions can effect positive environmental
change.
. Certain of our green electricity products are identified as
environmentally preferred by:
. Natural Resources Defense Council
. Environmental Defense Fund
. Clean Air Council (of Pennsylvania)
. Union of Concerned Scientists has chosen one of our products to serve
their California office and the electric vehicle charging station in
their parking lot.
We have an affinity marketing program with each of the following organizations:
. Redwood Alliance, Arcata, California
. Bay Keeper, San Francisco, California
. The American Lung Association, Los Angeles, California
. Environmental Media Association, Los Angeles, California
. Save Our Shores, Santa Cruz, California
. AIDS Fund, Philadelphia, Pennsylvania
Each of the following organizations have supported our work in community
outreach programs:
. Coalition of Clean Air, Los Angeles, California
. Heal the Bay, Santa Monica, 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.
Offer Convenience And Selection
According to the 1998 Green Gauge Report, 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." To fill this need, we are expanding the
offerings on our Web site to include a broad selection of green products in
addition to our existing energy products. 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.
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<PAGE>
Develop And Maintain Our Web Site As A State-of-the-Art, Interactive Online
Commerce Platform
We are developing our Web site and technology systems as 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.
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 economic
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
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
traffic aggregators in order to increase the level of traffic to our Web site.
These arrangements typically involve banner advertising on the aggregator's
site or network 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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On March 25, 1999, we entered into an Advertising and Promotion Agreement
with Yahoo! as a Premier Merchant, providing for the placement of banners and
related advertising on certain Yahoo! properties and Yahoo! mail for a one-year
period. The agreement is the first in which Yahoo! will employ a new technology
allowing it to market certain promotions to its registered users on a
geographically-targeted basis. Under the agreement, we become Yahoo!'s Premier
Merchant for consumer energy.
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, as well as the mailing function.
Affinity Programs. We use affinity marketing programs to market our products
through groups that share our interest in the environment. 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.
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. 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. 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 our call center functions.
. Mail. Customers may purchase our products by mail. We outsource our mail
response processing.
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.
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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.
. Product Delivery. Product delivery is effected directly by our
suppliers.
. Billing and Customer Care. We outsource billing and customer care
functions.
OUR GREEN ELECTRICITY PRODUCTS
We offer three green electricity products to residential electricity
customers in Pennsylvania. The following 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
------- ---------------------- ---------------
<C> <S> <C>
[Eco Smart logo] . 1% from new renewable + $1.18
landfill gas facilities
. 99% from natural gas and/or
large-scale hydroelectric
facilities
[Enviro Blend logo] . 3% from new renewable + $6.85
[Green-e logo] landfill gas facilities
. 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
[Nature's Choice logo] . 5% from new renewable + $10.37
[Green-e logo] landfill gas facilities
. 95% from other renewable
resources, including small-
scale hydroelectric,
landfill gas and/or wind
facilities
</TABLE>
The pricing of these products varies by utility service territory based on,
among other things, the wholesale supply prices available to us.
35
<PAGE>
We currently offer two green electricity products to new residential
electricity customers in California. The following 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
------- ---------------------- ---------------
<C> <S> <C>
[100% Renewable Power 2.0 . 5% from new renewable wind, -$0.66
logo] [Green-e logo] geothermal or landfill gas
facilities
. 95% from other renewable
resources, including small-
scale hydroelectric,
biomass and geothermal
facilities
[Wind for the Future 2.0 . 25% from newly-built wind +$12.19
logo] turbine generators
[Green-e logo]
. 75% from other renewable
resources, including small-
scale hydroelectric,
biomass and geothermal
facilities
</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 the 100%
Renewable Power 2.0SM product.
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.
We expect to offer green electricity products similar to those offered in
Pennsylvania and California in the retail electricity market of any state that
deregulates in a manner that we believe will allow us to compete effectively.
See "Risk Factors--Risks Related to Establishment of Our Business--We Face
Risks Related to the Deregulation Process."
We offer our electricity products in both Pennsylvania and California at a
guaranteed price based on a one-year term, except for our Wind for the Future
2.0SM product which is offered for a three-year term. 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
all requirements of a specified number of customers for the full term of our
arrangement with those customers. These requirements contracts provide that
during the relevant term the suppliers will deliver into the grid a volume of
electricity having the characteristics 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 supply contracts are designed to minimize our risk related to fluctuating
commodity pricing and usage. With the exception of minor costs associated with
specialty content that makes up less than 5% of our electricity requirements,
to date we have avoided taking on electricity supply costs that are not tied
directly to customer sales volumes. 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 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 for the foreseeable future, although we
can provide no assurance in this regard. See "Risk Factors--Other Risks Related
to Our
36
<PAGE>
Business Generally--We are Dependent on Third Parties to Supply the Electricity
Products We Sell" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
OTHER PRODUCTS
Solar Generation Equipment
We market Green Mountain SolarSM systems in California. 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 in California is between $6,000 and $13,000 in areas qualifying for the
most favorable state and federal subsidy programs and between $10,000 and
$20,000 in other areas. Applied Power Corporation designs and installs systems
offered in California using components manufactured by Solarex Corporation. We
intend to expand our marketing of Green Mountain SolarSM systems to new
markets, beginning with Pennsylvania. We expect to begin offering Green
Mountain SolarSM systems in Pennsylvania by April 15, 1999, again using one or
more strategic partners to manufacture, design and install these systems.
New Products Under Development
Energy Efficient Home Products. On our Web site we expect to offer 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 certain 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 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
37
<PAGE>
assure you whether or when those advances will occur. See "Risk Factors--Risks
Related to Establishment of Our Business--We Must Broaden Our Product
Offerings."
Credit Cards. We expect to offer a credit card that will be co-branded with
the Green Mountain brand and Visa or MasterCard. This credit card would be
available exclusively over the Internet using an online application process,
and monthly statements would also be delivered over the Internet. A portion of
our revenues from these credit cards would be invested in environmentally
beneficial projects such as large-scale solar generation facilities. We believe
this product would foster a sense of community among our customers and a sense
of identification with GreenMountain.com.
Ecotourism. We are exploring the possibility of offering ecological tours
and vacations by partnering with high-quality travel providers. The travel we
would 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. According to The Ecotourism
Society, nature travel is increasing at an annual rate of between 10% and 30%,
as compared to overall tourism which is increasing at an annual rate of 4%.
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 managed portfolios incorporating at least one
social investment strategy. Approaches under consideration include the
provision of reports identifying the performance of environmentally oriented
mutual funds as well as more active marketing or sponsorship roles, possibly in
cooperation with a strategic partner.
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 expect that our Web site will be fully functional by October 1,
1999.
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 various 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.
38
<PAGE>
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.
Examples of content that we are considering include:
. News articles and reports about the environment and issues that impact
the environment;
. 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 are exploring relationships with various content providers. 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.
We will maintain editorial oversight of all material contained on our Web site.
Online Purchasing
Our Web site will provide full online purchasing capability for all products
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
anticipated 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.
39
<PAGE>
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 certain of this
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.
40
<PAGE>
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 are used in more
than 90% of the Fortune 100 companies including Lockheed Martin, TWA and Zurich
Financial Services, and are used in more than 20,000 customer sites worldwide.
Because most aspects of our customer relationships are handled by our
outsourcing partners based on communications through the Information Network,
we can focus on our overall marketing strategy and product development.
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 certain 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
certain 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 certain
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 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;
41
<PAGE>
. Competitive pricing; and
. Reliability and speed of fulfillment.
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--We Face Intense Competition."
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. We pursue the registration of our key
trademarks and service marks in the United States and internationally. See
"Risk Factors--Other Risks Related to Our Business Generally--We Must Protect
Our Intellectual Property."
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--We Face Risks Related to the
Deregulation Process." 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."
OUR EMPLOYEES
As of March 1, 1999, we employed 67 full-time 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. Our lease for this space
expires on September 30, 2002. We anticipate that we will require additional
space within the next six months, but that suitable additional space will be
available at reasonable cost.
42
<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........................... World Watch 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. The members of our Environmental Advisory Board do not currently
receive any compensation for serving on that board, but are reimbursed for
their out-of-pocket expenses incurred in connection with their service on the
Environmental Advisory Board.
43
<PAGE>
MANAGEMENT
OUR EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive
officers and directors as of March 22, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Sam Wyly................ 64 Chairman and Director
Dennis M. Crumpler...... 46 Vice Chairman, acting Chief Technology Officer and Director
Evan A. Wyly............ 37 Vice Chairman and Director
M. David White.......... 37 Chief Executive Officer
Dennis W. Kelly......... 45 President
Kevin W. Hartley........ 38 Chief Marketing Officer and Executive Vice President
Julia D. Blunden........ 32 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......... 46 Vice President, General Counsel and Secretary
Jay LeDuc............... 43 Director of Operations and Systems
Thomas H. Rawls......... 52 Chief Environmental Integrity Officer
K. Scott Canon.......... 37 Chief Financial Officer
H. Lee S. Hobson........ 34 Director
Lisa Wyly............... 33 Director
Mark Cuban.............. 39 Director*
Richard E. Hanlon....... 51 Director*
Reed Maltzman........... 32 Director*
</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 an 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.
Dennis M. Crumpler has been a Vice Chairman, our acting Chief Technology
Officer 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.
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
44
<PAGE>
Managing Partner of Maverick Capital, a manager of equity hedge funds with $2.5
billion in assets. Mr. Wyly is also a director of Sterling Commerce, Sterling
Software and Michaels Stores.
M. David White has been our Chief Executive Officer since October 1998. From
January 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 December 1997, 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.
Dennis W. Kelly has been our President since February 1999. From December
1982 to February 1999, Mr. Kelly served in various 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.
Kevin W. Hartley has been our Chief Marketing Officer and Executive Vice
President since August 1997. From 1994 to August 1997, Mr. Hartley was Director
of Marketing of Green Mountain Power Corporation. 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.
Julia D. Blunden has been our Vice President of Strategic Planning since
August 1997. From January 1997 to August 1997, Ms. Blunden was Regional
Director of the California region of Green Mountain Power Corporation. Prior to
January 1997, Ms. Blunden worked in power plant development and acquisition
with The AES Corporation, a worldwide developer, owner and operator of power
plants, and in grassroots organization of environmental and consumer groups
involved with restructuring of the electric utility industry in California. Ms.
Blunden held various project management positions with AES over a period of ten
years, and worked in 1994 for the Center for Energy Efficiency and Renewable
Technologies.
Thomas C. Boucher has been our Vice President of Energy Supply and Business
Development since August 1997. From May 1996 to August 1997, Mr. Boucher was
Vice President, Business Strategy and Development of Green Mountain Power
Corporation. Between 1992 and 1996, Mr. Boucher held a variety of financial,
business and energy planning positions at Green Mountain Power Corporation.
Karen K. O'Neill has been our Vice President of New Markets since August
1997. Ms. O'Neill held various positions with Green Mountain Power Corporation
since 1989, including Vice President, Organization Development and Human
Resources from January 1995 to August 1997 and Assistant General Counsel from
1989 to 1995.
Peter H. Zamore has been our Vice President, General Counsel and Secretary
since August 1997. From 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.
Jay LeDuc has been our Director of Operations and Systems since January
1999. From October 1997 to January 1999, Mr. LeDuc served as our Manager, then
Director, of Regional Business Development. From October 1992 to October 1997,
Mr. LeDuc served in various 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.
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<PAGE>
Thomas H. Rawls has been our Director of Environmental Affairs since 1997.
From March 1993 to August 1997, he worked in Corporate Relations and Marketing
at Green Mountain Power Corporation. 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.
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: Senior Vice
President from March 1997 to March 1999, President from January 1996 to March
1997, and Vice President from May 1993 to January 1996. From October 1992 to
March 1993, he worked for Chase Manhattan Bank, and from August 1987 to October
1992 for Goldman, Sachs, an investment banking firm.
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.
Mr. Hobson is a Partner and Senior Analyst of Maverick Capital. Mr. Hobson
focuses on investments in global consumer products 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, with 27
control investments in companies outside the United States. Earlier he was an
analyst with Goldman Sachs in New York and an analyst with Societe Generale, an
investment banking firm, in Paris.
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 President of Highland Trust Co., 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 Deaf. From 1990 to 1992, Ms. Wyly was a teacher at R.E.A.D.S., a
program for deaf and hard of hearing children.
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. Mr. Cuban co-founded
and is President and Chairman of the Board of broadcast.com, a provider of live
and on-demand audio and video programs over the Internet. From 1991 to May
1995, Mr. Cuban was President of Radical Computing, a Dallas-based venture
capital and investment company specializing in technology companies.
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
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.
Reed 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. From 1994 to August 1995, Mr. Maltzman attended the
Stanford School of Business.
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<PAGE>
CLASSIFIED BOARD OF DIRECTORS
Prior to the closing of this offering, our certificate of incorporation will
be amended to provide 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 directors in
which the vacancy occurred and until such director's successor has been elected
and qualified. See "Description of Capital Stock--Certain 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. Richard Hanlon and Lisa Wyly will
serve as Class III directors, whose terms expire at the 2002 annual meeting of
stockholders. We have retained a director search firm to assist us in
identifying candidates in our search for an additional director. We anticipate
that the board of directors will appoint the individual selected as a director
as soon as practicable after the search is completed and that he or she will be
appointed to serve in Class III.
BOARD COMMITTEES
Prior to the closing of this offering, our board of directors expects to
establish five board committees--an Executive Committee, an Environmental
Integrity Committee, an Audit and Special Compensation Committee, a
Compensation Committee and a Nominating 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 certain limitations under
Delaware law. The initial Executive Committee members will be Sam Wyly, Evan
Wyly and Lisa Wyly.
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, Evan Wyly and Lisa Wyly.
Audit and Special Compensation Committee
The Audit and Special Compensation Committee will review our internal
accounting procedures and controls and consult with and review the services
provided by our independent accountants. The Audit and Special Compensation
Committee will also 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 Audit and Special Compensation Committee
members will be Mark Cuban, Richard Hanlon and Reed Maltzman.
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
(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, Evan
Wyly and Lisa Wyly.
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Nominating Committee
The Nominating Committee will 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 initial members
of the Nominating Committee will be Sam Wyly, Evan Wyly and Lisa Wyly.
DIRECTOR COMPENSATION
We currently have no standard arrangement under which we compensate
directors for their services provided in that capacity, except that we do
reimburse them for out-of-pocket expenses incurred in connection with attending
board of directors and committee meetings. Directors will be eligible to
receive stock option grants under our 1999 Stock Option Plan. See "--Stock
Option Plans--1999 Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth certain 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 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 4,974 1,200(4)
Kevin W. Hartley........
Vice President, 1998 155,000 125,000 0 8,348(5)
Marketing 1997 54,524 34,875 6,466 775(5)
Thomas C. Boucher....... 1998 150,000 45,000 0 9,743(6)
Vice President, Energy 1997 51,786 33,750 5,471 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 2,487 8,413(8)
Peter H. Zamore......... 1998 140,000 45,000 0 9,204(9)
Vice President, General 1997 48,952 31,500 4,974 1,050(9)
Counsel and Secretary
</TABLE>
- --------
(1) Mr. White became the Chief Executive Officer as of October 5, 1998. Mr.
White's annual 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. Since that date, he has continued as an
employee at the same level of compensation and will cease to be an employee
as of April 6, 1999.
(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.
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(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.
OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION GRANTS IN LAST FISCAL YEAR
We did not grant any options to our executive officers 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 the exercise of
options during 1998 and 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.......... 4,975 0 0 0
Kevin W. Hartley......... 2,587 3,880 0 0
Thomas C. Boucher........ 2,189 3,283 0 0
David B. Luther.......... 995 1,493 0 0
Peter H. Zamore.......... 1,990 2,985 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
On February 5, 1999, we entered into a letter agreement with Dennis M.
Crumpler relating to his service to us as a director, Vice Chairman and
consultant. Under the agreement, Mr. Crumpler purchased an equity interest
under our Employee Unit Purchase Plan. See "Certain Transactions--Subsequent
Transactions--Employee Unit Purchase Plan." In connection with the execution of
the agreement, in February 1999, we granted him an option, which upon our
conversion from a limited liability company to a corporation will entitle him
to purchase 50,000 shares of common stock, in connection with his service as a
director. See "Management--Director Compensation." We also granted him an
option, which upon our conversion from a limited liability company to a
corporation will entitle him to purchase 356,250 shares of common stock, in
connection with his service as Vice Chairman. These options vested as to 20% of
the underlying equity interest on the date of grant and will vest 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. In addition, he receives
an
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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 "Certain Transactions--Subsequent
Transactions--Employee Unit Purchase Plan." Under the agreement, we granted him
an option, which upon our conversion from a limited liability company to a
corporation will entitle him to purchase 750,000 shares of common stock. In
addition, pursuant to certain antidilution provisions of the agreement, in
connection with the completion of a private equity offering in February 1999 we
granted him an option, which upon our conversion from a limited liability
company to a corporation will entitle him to purchase 189,438 shares of common
stock. The options granted to Mr. White vested as to 20% of the underlying
equity interest on the date of grant and will vest as to 5% of the underlying
equity interest on the first day of each of the next 16 calendar quarters.
Under the agreement, we will also grant Mr. White an option in connection with
the closing of this offering that will entitle him to purchase a number of
shares of common stock equal to 5% of the number of shares issued in this
offering at an exercise price per share equal to the initial public offering
price. This option will be subject to a vesting schedule similar to that of Mr.
White's other options described in this paragraph.
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, under certain circumstances, the options granted
to him as described above will immediately vest and be exercisable.
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. Under that agreement, Highland Stargate
has agreed to provide compensation and certain benefits to Mr. White in
consideration for services provided by Mr. White to Highland Stargate. The
agreement expressly provides that the performance of Mr. White's duties to
Highland Stargate will not interfere with the performance by him of his duties
to us on a substantially full-time basis. At the time he accepted his position
with us, Scott Canon, our Chief Financial Officer, also entered into a similar
agreement with Highland Stargate.
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>
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
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<PAGE>
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 to
purchase the number of shares indicated below (assuming our conversion from a
limited liability company to a corporation had occurred as of that date):
<TABLE>
<CAPTION>
Number of Shares
Name Underlying Option
---- -----------------
<S> <C>
Thomas C. Boucher...................................... 5,472
Kevin W. Hartley....................................... 6,467
Douglas G. Hyde........................................ 12,438
David B. Luther........................................ 2,488
Peter H. Zamore........................................ 4,975
</TABLE>
These options provided 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 President, but
continued as our employee at the level of compensation provided in his
employment contract. The agreement provides that he will cease to be an
employee on April 6, 1999. We made an initial cash payment of $142,500 to him
shortly after the execution of the agreement and a second cash payment of
$142,500 to him shortly after December 31, 1998. We are obligated to make a
third cash payment of $142,500 to him on April 6, 1999. The agreement further
provides that his option granted on August 6, 1997, to the extent vested on
April 6, 1999, will remain exercisable until August 6, 2002. However, the
agreement gives us discretion as to whether the unvested portion will become
exercisable. Under the agreement, he was permitted to invest under the Employee
Unit Purchase Plan. See "Certain Transactions--Subsequent Transactions--
Employee Unit Purchase Plan." Under the agreement, Mr. Hyde is prohibited from
engaging in certain competitive activities and from recruiting our employees
and soliciting our customers during the two-year period ending April 6, 2001.
STOCK OPTION PLANS
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 eligible employees. As of , 1999, options exercisable for a total of
76,297 shares of common stock (assuming our conversion from a limited liability
company to a corporation had occurred as of that date) were outstanding under
the 1997 Employee Ownership Plan. 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. Under the 1999
Unit Option Plan, our predecessor granted options to eligible participants,
including employees, directors and consultants. As of , 1999, options
exercisable for a total of shares of common stock (assuming our conversion
from a limited liability company to a corporation had occurred as of that date)
were outstanding under the 1999 Unit Option Plan. See "Shares Eligible for
Future Sale."
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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 Audit and
Special Compensation Committee and our board of directors, we expect in
connection with the closing of this offering to issue to Sam Wyly an option to
purchase shares in an amount equal to 5% of the shares issued in this offering
at an exercise price equal to the initial public offering price. This option
vested as to 20% of the underlying shares on the date of grant and will vest 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
executives officers will from time to time receive substantial option grants.
Administration. The 1999 Stock Option Plan will be administered by the Audit
and Special Compensation Committee or 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 . However,
this number will be increased, if necessary, on 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 Audit and 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 Audit and 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.
Eligibility. Our executive officers, key employees, directors, advisors and
consultants, and prospective employees, 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 Audit and 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
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<PAGE>
grant date. The Compensation Committee or the board of directors may, without
the consent of the holder of an option, amend the terms of the option in
various 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 Audit and 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 .
Vesting of Options Upon a Change in Control. The stock option agreement
evidencing any stock option may provide that the stock option will become
exercisable if there is a change in control of GreenMountain.com (as defined in
the stock option agreement or in any agreement referenced in such stock option
agreement) or in the event of any other similar transaction or event.
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 Audit and 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the limited liability company had no compensation committee.
Decisions regarding compensation were made by the full management committee of
the limited liability company. There were no officers or employees of the
limited liability company who participated in decisions regarding compensation
of officers and directors.
During 1998, none of our 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 our management
committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Prior to the closing of this offering, our certificate of incorporation and
bylaws will be amended. Our amended certificate will limit 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.
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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 expenses (including attorneys' fees), 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 amended certificate and amended bylaws will provide that we are required
to indemnify our directors and executive officers and may indemnify our other
officers and employees and other agents to the maximum extent permitted by law.
Our amended bylaws will also permit us to advance expenses incurred by an
indemnified party in connection with the defense of any action or proceeding
arising out of that party's status or service as a director, officer, employee
or other agent of GreenMountain.com. An indemnified party would be required to
repay those advances if it is ultimately determined that the party is not
entitled to indemnification. Our amended bylaws will also permit us to secure
insurance on behalf of any director, officer, employee or other agent for any
liability arising out of his or her actions in a representative capacity,
regardless of whether the bylaws would require indemnification.
We intend to enter into indemnification agreements with our directors and
certain 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 (other than 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. We intend to obtain
directors' and officers' liability insurance.
CERTAIN 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.
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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, L.L.C., an investment vehicle controlled by the Wyly family,
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 certain
service marks, including our "Choose wisely. It's a small planet." and
"Green Mountain Energy Resources" service marks, various marketing
studies and analyses and its rights under agreements with various 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
certain 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 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%.
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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. Certain companies, 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; and
. 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.
Employee Unit Purchase Plan
During January and early February 1999, employees, consultants and other
participants in our Employee Unit Purchase Plan purchased 1,000,000 common
units in the limited liability company in the aggregate for total consideration
of $10.0 million. Upon our conversion from a limited liability company to a
corporation, these 1,000,000 common units will be converted to 2,500,000 shares
of common stock. Under the Employee Unit Purchase Plan, participants were
permitted to pay for the common units purchased with cash or promissory note,
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
56
<PAGE>
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 certain information regarding the
number of shares purchased by our executive officers and directors (assuming
our conversion from a limited liability company to a corporation had occurred),
indicating the aggregate amount and type of consideration paid.
<TABLE>
<CAPTION>
Number of Amount of
Name and Position Shares Cash Loan Total Consideration
----------------- --------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
Dennis M. Crumpler...... 500,000 $1,000,000 $1,000,000 $2,000,000
M. David White.......... 750,000 1,500,000 1,500,000 3,000,000
Dennis W. Kelly......... 100,000 200,000 200,000 400,000
Kevin W. Hartley........ 165,000 115,000 545,000 660,000
Julia D. Blunden........ 25,000 50,000 50,000 100,000
Thomas C. Boucher....... 26,000 52,000 52,000 104,000
Karen K. O'Neill........ 25,000 50,000 50,000 100,000
Peter H. Zamore......... 28,500 57,000 57,000 114,000
Jay LeDuc............... 6,500 13,000 13,000 26,000
Thomas Rawls............ 2,500 5,000 5,000 10,000
K. Scott Canon.......... 262,500 400,000 650,000 1,050,000
--------- ---------- ---------- ----------
Totals................ 1,891,000 $3,442,000 $4,122,000 $7,564,000
========= ========== ========== ==========
</TABLE>
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 in the
limited liability company in the aggregate for total consideration of $30.3
million. Upon our conversion from a limited liability company to a corporation,
these 1,515,500 common units will be converted into 3,788,750 shares of common
stock. As a result of such purchases, Maverick Capital became the beneficial
owner of 750,000 common units, which will be represented by 1,875,000 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
H. Lee S. Hobson is a Partner of Maverick Capital. In addition, Green Funding
II, L.L.C., an investment vehicle controlled by the Wyly family, acquired
directly 500,000 common units, which will be represented by 1,250,000 shares
upon our conversion from a limited liability company to a corporation, for an
aggregate purchase price of $10.0 million.
REORGANIZATION TRANSACTION
Prior to the closing of this offering, we will convert 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 will be accomplished by merging Green Mountain Energy Resources
L.L.C., a Delaware limited liability company, into GreenMountain.com Company, a
Delaware corporation. In connection with the conversion, the limited liability
company agreement will terminate, except for certain covenants that, by their
terms, require performance after the termination of such agreement, and each
member will receive 2.5 shares of GreenMountain.com common stock in exchange
for each of its common units in the limited liability company. In addition, all
outstanding options and warrants exercisable for common units in the limited
liability company will be converted into options or warrants exercisable for
GreenMountain.com common stock.
The former members of the limited liability company will have certain
registration rights with respect to shares of GreenMountain.com they receive in
the conversion. See "Description of Capital Stock--Registration Rights."
57
<PAGE>
CERTAIN OTHER TRANSACTIONS AND RELATIONSHIPS
Agreement 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
certain network management services and other information systems consulting
services. As of December 31, 1998, we had paid Sterling Software $826,611 for
services provided by it and owed it an additional $382,396 for those services.
Sam Wyly and Evan Wyly are directors and stockholders of Sterling Software.
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 $73,181 for services provided to it by our employees during
1998.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of shares of common stock of GreenMountain.com as of , 1999
(assuming our conversion from a limited liability company to a corporation had
occurred as of that date) by each person who we know beneficially owns more
than 5% of the shares of common stock, 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.
<TABLE>
<CAPTION>
Percentage of
Number of Shares Shares Beneficially Owned(1)
Name and Address of Beneficially Owned ------------------------------------
Beneficial Owner(1) Prior to the Offering Prior to Offering After the Offering
------------------- --------------------- ----------------- ------------------
<S> <C> <C> <C>
Sam Wyly................ % %
Dennis M. Crumpler......
Evan A. Wyly............
M. David White..........
Douglas G. Hyde.........
Kevin W. Hartley........
Thomas C. Boucher.......
David B. Luther.........
Peter H. Zamore.........
H. Lee S. Hobson........
Lisa Wyly...............
Mark Cuban..............
Richard E. Hanlon.......
Reed Maltzman...........
All directors, director
nominees and executive
officers as a group
(18 persons)...........
</TABLE>
- --------
*Less than 1%.
(1) Percentage of beneficial ownership is based on shares outstanding as of
, 1999 (assuming our conversion from a limited liability company to a
corporation had occurred as of that date) and shares outstanding after
the closing of the offering. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. 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.
DESCRIPTION OF CAPITAL STOCK
Prior to the closing of this offering, our certificate of incorporation will
be amended so that we are authorized to issue 100,000,000 shares of common
stock, par value $0.01 per share, and 25,000,000 shares of preferred stock, par
value $0.01 per share. As of , 1999, there were shares of common stock
outstanding held of record by stockholders, outstanding options to purchase
shares of common stock and outstanding warrants to purchase shares of
common stock (assuming our conversion from a limited liability company to a
corporation and the related conversion of each common unit of the limited
liability company into 2.5 shares of common stock of the corporation had
occurred as of that date).
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
59
<PAGE>
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 % of the outstanding
shares of common stock will hold registration rights that will allow them to
"piggy back" 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 under certain
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.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, OUR BYLAWS AND DELAWARE
LAW
Prior to the closing of this offering, our certificate of incorporation and
bylaws will be amended. Certain provisions of our certificate of incorporation
and bylaws, as so amended, 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.
Classified Board Of Directors, Removal Of Directors And Filling Vacancies In
Directorships
Our amended certificate of incorporation will provide 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
amended certificate of incorporation will provide 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 amended certificate of
incorporation, any vacancy on our board of directors, including a vacancy
resulting from an enlargement of our board of directors, will 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.
60
<PAGE>
Cumulative Voting
Our amended certificate of incorporation will expressly deny 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 amended certificate of incorporation will eliminate the ability of
stockholders to act by written consent in lieu of a meeting. It will also
provide that special meetings of the stockholders may only be called by our
Chairman or a Vice Chairman or by a majority of total number of directors
(assuming no vacancies) and the business permitted to be conducted at any such
meeting will be limited to that brought before the meeting by our Chairman or a
Vice Chairman or by a majority of the total number of directors (assuming no
vacancies).
Advance Notice Requirements for Stockholder Proposals and Directors
Nominations
Our amended bylaws will 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 immediately preceding annual
meeting of stockholders, except that 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 notice of the date of the
annual meeting was mailed to stockholders or made public, whichever first
occurs. Our amended bylaws will also specify certain 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
amended 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.
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
amended certificate of incorporation and bylaws will 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 certain 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.
61
<PAGE>
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 certain mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain 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. We will file an application to include our common stock on the
Nasdaq Stock Market's National Market under the symbol "GMTN."
TRANSFER AGENT
Our registrar and transfer agent for our common stock is Harris Trust and
Savings Bank.
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, shares of common stock will be outstanding (
shares if the underwriters exercise their over-allotment option in full). See
"Capitalization." Of these shares, the shares ( shares if the underwriters
exercise their over-allotment option in full) 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 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.
Our officers, directors and certain stockholders have 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.
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<PAGE>
Sales under Rule 144 are also subject to certain 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. The foregoing summary of Rule
144 is not intended to be a complete description.
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 permits 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 permits 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.
As soon as practicable following the closing of this offering, we intend to
file a registration statement under the Securities Act to register shares of
common stock issuable upon the exercise of outstanding stock options or
reserved for issuance under our 1999 Stock Option Plan as of , 1999 (assuming
our conversion from a limited liability company to a corporation had occurred
as of that date). See "Management--Stock Option Plans." After the effective
date of such registration statement, these shares will be available for sale in
the open market subject to the lock-up agreements described above and, for our
affiliates, to certain 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 is acting as representative.
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 certain conditions of 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 of
Underwriter Shares
----------- ---------
<S> <C>
Prudential Securities Incorporated.................................
---
Total............................................................
===
</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 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 representative of the underwriters has 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 certain 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 representative has 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[s] Over-Allotment Option[s]
--------- ------------------------ ------------------------
<S> <C> <C> <C>
Fees paid by
GreenMountain.com...... $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $ in expenses for
this offering. We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act or contribute to
payments that the underwriters may be required to make in respect of these
liabilities.
Our officers, directors, and certain 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 certain exceptions, 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 representative and us,
is based upon various 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:
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<PAGE>
. 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.
LEGAL MATTERS
The validity of the common stock under Delaware law will be passed upon for
us by Jones, Day, Reavis & Pogue, Dallas, Texas. Certain 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 Company 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.
65
<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 the our contracts, agreements or other documents, the
references 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.
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<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........................... 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....... F-4
Statements of Stockholders' Equity for the Period from Inception (February
26, 1997)
through December 31, 1997 and for the Year Ended December 31, 1998....... 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....... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
After the reorganization transaction discussed in Note 12 to
GreenMountain.com Company's financial statements is effected, we expect to be
in a position to render the following audit report.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 29, 1999
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.
F-2
<PAGE>
GreenMountain.com Company
Balance Sheets
as of December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Assets
Cash............................................... $ 1,933,403 $ 5,653,854
Restricted Cash (Note 2)........................... -- 2,920,407
Accounts Receivable (net of allowance of $34,956 at
December 31, 1998) (Note 8)....................... -- 434,585
Unbilled Accounts Receivable (Note 2).............. -- 235,732
Accounts Receivable--Related Party (Note 6)........ 16,457 23,915
Prepaid Expenses and Other Current Assets.......... 636,232 422,268
------------ ------------
Total current assets........................... 2,586,092 9,690,761
------------ ------------
Property and Equipment, net of depreciation (Notes
2 and 3).......................................... 1,268,708 1,367,360
Organization Costs (Note 2)........................ 328,565 --
------------ ------------
Total assets................................... $ 4,183,365 $ 11,058,121
============ ============
Liabilities and Stockholders' Equity
Accounts Payable................................... $ 1,018,903 $ 4,270,946
Accrued Expenses (Note 7).......................... 1,426,476 7,688,254
------------ ------------
Total liabilities.............................. 2,445,379 11,959,200
Commitments and Contingencies (Note 5)
Stockholders' Equity:
Preferred stock ($0.01 par value; 25,000,000
authorized and 0 issued and outstanding at
December 31, 1997 and 1998)..................... -- --
Common stock ($0.01 par value; 100,000,000
authorized and 600,000 and 15,000,000 issued at
December 31, 1997 and 1998, respectively)....... 6,000 150,000
Additional paid-in capital....................... 15,594,000 59,850,000
Accumulated deficit.............................. (13,862,014) (59,901,079)
Treasury stock (161,850 shares at cost).......... -- (1,000,000)
------------ ------------
Total stockholders' equity..................... 1,737,986 (901,079)
------------ ------------
Total liabilities and stockholders' equity..... $ 4,183,365 $ 11,058,121
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GreenMountain.com Company
Statements of Operations
for the Period from Inception (February 26, 1997) through December 31, 1997
and for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Revenues.......................................... $ -- $ 1,530,496
Cost of Sales..................................... -- 1,097,379
Operating Expenses:
Customer and regional operations................ 982,085 4,834,379
Sales and marketing............................. 4,336,623 33,010,308
General and administrative...................... 1,741,892 4,225,716
Technology and development...................... 2,048,191 2,918,056
Depreciation and amortization................... 90,597 767,605
Development and transaction costs............... 4,705,713 709,068
------------ ------------
Total operating expenses...................... 13,905,101 46,465,132
------------ ------------
Operating loss................................ (13,905,101) (46,032,015)
Interest income (expense), net.................... 43,087 (7,050)
------------ ------------
Net loss...................................... $(13,862,014) $(46,039,065)
============ ============
Basic and diluted loss per common share........... $ (26.17) $ (7.27)
============ ============
Basic and diluted weighted average common shares
outstanding...................................... 529,677 6,329,452
============ ============
</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
and for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Common Shares Treasury Shares
------------------------ -------------------
Shares Amount Shares Amount Total
---------- ------------ ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Capital contribution on
August 6, 1997......... 490,455 $ 12,000,000 -- $ -- $ 12,000,000
Return of capital on
August 7, 1997....... -- (4,000,000) -- -- (4,000,000)
Additional capital
contributions........ 109,545 7,600,000 -- -- 7,600,000
Losses accumulated
during the
development stage.... -- (13,862,014) -- -- (13,862,014)
---------- ------------ ------- ----------- ------------
Balance, December 31,
1997................... 600,000 1,737,986 -- -- 1,737,986
Additional capital
contributions........ 14,561,850 44,400,000 -- -- 44,400,000
Repurchase of shares.. (161,850) -- 161,850 (1,000,000) (1,000,000)
Net loss.............. -- (46,039,065) -- -- (46,039,065)
---------- ------------ ------- ----------- ------------
Balance, December 31,
1998................... 15,000,000 $ 98,921 161,850 $(1,000,000) $ (901,079)
========== ============ ======= =========== ============
</TABLE>
The accompanying notes are an integral part to these financial statements.
F-5
<PAGE>
GreenMountain.com Company
Statements of Cash Flows
for the Period from Inception (February 26, 1997) through December 31, 1997
and for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss......................................... $(13,862,014) $(46,039,065)
Adjustments to reconcile net loss to net cash
used in operating activities--
Depreciation and amortization.................. 90,597 767,605
Provision for doubtful accounts................ -- 34,956
Loss on disposals of property and equipment.... -- 17,225
Write-off of organization costs................ -- 269,892
Changes in assets and liabilities--
Restricted cash.............................. -- (2,920,407)
Accounts receivable.......................... (16,457) (476,999)
Unbilled accounts receivable................. -- (235,732)
Prepaid expenses and other current assets.... (636,232) 213,964
Organization costs........................... (352,034) --
Accounts payable............................. 1,018,903 3,252,043
Accrued expenses............................. 1,426,476 5,261,778
------------ ------------
Net cash used in operating activities...... (12,330,761) (39,854,740)
------------ ------------
Cash Flows from Investing Activities:
Purchases of property and equipment.............. (1,335,836) (824,809)
------------ ------------
Net cash used in investing activities...... (1,335,836) (824,809)
------------ ------------
Cash Flows from Financing Activities:
Proceeds of short-term borrowing................. -- 10,000,000
Payment of short-term borrowing.................. -- (10,000,000)
Capital contributions............................ 19,600,000 44,400,000
Return of capital................................ (4,000,000) --
------------ ------------
Net cash provided by financing activities.. 15,600,000 44,400,000
------------ ------------
Net Increase in Cash............................... 1,933,403 3,720,451
Cash, beginning of period.......................... -- 1,933,403
------------ ------------
Cash, end of period................................ $ 1,933,403 $ 5,653,854
============ ============
Supplemental Disclosure:
Interest paid.................................... $ -- $ --
============ ============
Taxes paid....................................... $ -- $ 950
============ ============
Supplemental Disclosure of Noncash Items:
Repurchase of shares (see Note 1)................ $ -- $ 1,000,000
============ ============
</TABLE>
The accompanying notes are an integral part to these financial statements.
F-6
<PAGE>
GreenMountain.com Company
Notes to Financial Statements
December 31, 1998
(1) Organization and Business
GreenMountain.com Company (the Company, formerly known as Green Mountain
Energy Resources L.L.C.) is a Delaware corporation, originally formed on
February 26, 1997 as a limited liability company. As further described in Note
12, the Company reorganized into a corporation in early 1999. The Company was
founded by Green Funding I, L.L.C. (the Investor), an affiliate of the Wyly
family, and Green Mountain Resources, Inc. (GMR), a subsidiary of Green
Mountain Power Corporation. The Company was formed to become a national retail
marketer of electricity produced from renewable and other environmentally
preferable sources to residential customers. The Company is actively marketing
and soliciting residential electric service customers in Pennsylvania and
California with plans to expand into additional markets as they open.
The Company began active operations on August 6, 1997 under the terms of an
operating agreement, dated August 6, 1997 (the Operating Agreement). The
Investor initially committed to aggregate cash capital contributions in the
amount of $30,000,000. On October 31, 1997, the Company issued additional
shares to the Investor upon an additional capital commitment of $10,000,000. As
of December 1998, the Investor had funded the $40,000,000 in original
commitments and had committed and funded an additional $20,000,000.
On August 6, 1997, GMR made capital contributions to the Company in the form
of the transfer to the Company of certain property, including certain
intellectual property and contract rights. On August 6, 1997, GMR's capital
account recorded on the Company's books was $4,000,000 which was subsequently
offset by a $4,000,000 payment to GMR for a return of capital on August 7,
1997. In December 1998, the Company entered into an agreement with GMR to buy
back its interests in the Company for $1,000,000, which was paid in two
installments on January 4, 1999 and February 16, 1999. By year-end 1998, the
Investor owned all of the shares of the Company.
The losses for the period and year ended December 31, 1997 and 1998,
respectively, while the Company was a limited liability company (see Note 12)
were allocated 100% to the Investor 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 such
losses, first to members other than the Investor, to the extent of those
members' capital contributions and, thereafter, to members, including the
Investor, in proportion to their respective ownership interests.
The Company has generated approximately $1.5 million in residential electric
revenue sales in California during 1998. 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. The Company began serving
customers in Pennsylvania on January 1, 1999. As of December 31, 1998, the
Company has an accumulated deficit of $59,901,079. The Company 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 the Company's
business plan is dependent on this offering. There can be no assurance that
such additional financing will be available. Should additional financing not be
available, management would curtail the Company's current growth plans and
management believes the proceeds of $35,201,750 from its recent unit offerings
(see Note 11) will be sufficient to fund the Company's operations at least
through 1999.
(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. The Company was
considered a development stage company as of and for the period from inception
through December 31, 1997.
F-7
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(b) Reclassifications
Certain prior year amounts have been reclassified to be consistent with the
current presentation.
(c) Restricted Cash
Certain of the Company'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.
(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 the Company wrote off the
remaining unamortized balance of organization costs, amounting to $269,892, in
accordance with the new pronouncement.
(e) Property and Equipment
Property and equipment are stated at cost. The Company 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.............................................. 3-5 years
Furniture and fixtures......................................... 5-7 years
</TABLE>
(f) 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.
(g) Impairment of Long-Lived Assets
The Company has assessed the realizability of its long-lived assets in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To
Be Disposed Of. The Company does not believe that any material impairment of
its long-lived assets has occurred.
(h) 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.
(i) Fair Value of Financial Instruments
The Company'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
approximate their fair values due to their short-term nature.
F-8
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(j) 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.
(k) Earnings per Share
The dilutive effect of potential common shares in 1997 and 1998, 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, the Company has
determined that there were no nominal issuances of common stock or potential
common stock in the period prior to the Company'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 for the years presented. The potential common
shares excluded in 1997 and 1998 related to outstanding warrants and stock
options were 92,673 and 86,220, respectively.
(l) Employee Benefit Plan
The Company has a defined contribution plan in which the Company 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, the
Company matches 50% of each employee's contribution up to the employee's first
6% contribution. Both Company and employee contributions vest immediately.
(3) Property and Equipment
Property and equipment consisted of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Computer hardware........................................ $ 809,920 $1,139,923
Computer software........................................ 295,290 426,278
Furniture and fixtures................................... 230,626 567,685
---------- ----------
1,335,836 2,133,886
Less--Accumulated depreciation........................... 67,128 766,526
---------- ----------
$1,268,708 $1,367,360
========== ==========
</TABLE>
(4) Options and Warrants
(a) 1997 and 1998 Options
During 1997 and 1998, the Company granted options to employees, officers,
consultants and advisors at market value. The options expire on the fifth
anniversary of the grant date.
F-9
<PAGE>
GreenMountain.com Company
Notes To Financial Statements--(Continued)
Option activity is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Granted, August 7, 1997...................................... 82,750 $90.45
------ ------
Outstanding, December 31, 1997............................... 82,750 90.45
Granted.................................................... 1,512 90.45
Forfeited.................................................. (7,965) 90.45
------ ------
Outstanding, December 31, 1998............................... 76,297 $90.45
====== ======
</TABLE>
(b) 1999 Option Plan
During the first quarter of 1999, the Company adopted an option plan whereby
options may be granted to employees, officers, directors, consultants and
advisors at market value. These options would vest 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 the Company.
(c) Warrants
During 1997, the Company issued warrants to its consultants and advisors for
9,923 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. The Company 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: dividend yield of 0% for all periods;
volatility of 0% for all periods; risk-free interest rate of 5.88% to 6.00% for
options granted during 1997 and 1998 and a weighted average expected option
term of two years for all periods. The weighted average fair value per share of
options granted during 1997 and 1998 was $90.45.
(5) Commitments and Contingencies
(a) Power Supply Agreements
For the Pennsylvania market, the Company has entered into three agreements
with major wholesale suppliers for electricity supply to serve the requirements
of the Company'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 the Company 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-10
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
For the California market, the Company 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 the Company'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.
The Company'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 the Company's load forecast. In addition, the Company has
delivered to one supplier irrevocable letters of credit in the amounts of
$334,006 and $481,200 in association with the supplier's purchase and
installation of three wind power turbines. The Company 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
were $2,765,230, reflected on the balance sheet as restricted cash.
(b) Outsourcing Agreement
On May 15, 1998, the Company 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 the Company. The Company 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 December 31, 2003 (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. The Company 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. The
Company 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, the Company entered into a contract with ICT Group,
Inc. to manage its call center and resulting databases to support the Company'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, the Company has minimum annual financial
commitments for teleservices and communications costs of $392,000.
(d) Marketing Services Agreement
On January 1, 1998, the Company 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 terminated by 90 days notice in writing. Under the terms of the
agreement, the Company is required to pay a minimum monthly retainer fee of
$30,000 as well as monthly advance payments in the amount of anticipated
F-11
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
expenses less the monthly retainer fee. Total Company payments under this
contract in 1998 were approximately $16,228,000.
(e) Facility Lease Agreement
The Company leases an office facility in Vermont under a cancelable
operating lease that expires September 30, 2002. Future minimum lease payments
required, provided the Company 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 the Company to
terminate the lease at September 30, 1999, 2000 or 2001. If the Company elects
to terminate the lease at any one of these dates, the Company is obligated to
pay $33,000, $25,000, or $12,500, respectively, as consideration for early
termination.
(6) Other Related Party Transactions
During 1998, the Company paid Sterling Software, Inc. (an affiliate of Sam
Wyly, the Company's Chairman) $826,611 for information technology consulting
services, and owes an additional $382,396 at December 31, 1998, which is
included in accounts payable on the balance sheet. The Company has no minimum
financial commitment with regard to the agreement with Sterling Software, Inc.
The Company 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 the Company for 1997 and 1998,
respectively. In addition, the Company received $31,803 and $73,191 during 1997
and 1998, respectively, for services provided to Green Mountain Power
Corporation by the Company's employees. As of December 31, 1998, Green Mountain
Power Corporation is no longer an affiliate of the Company.
(7) Accrued Expenses
Accrued expenses at December 31, 1997 and 1998 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Accrued customer and regional operations................. $ 78,880 $ 955,255
Accrued sales and marketing.............................. 226,081 3,639,386
Accrued general and administrative....................... 742,074 2,899,914
Accrued technology and development....................... 379,441 193,699
---------- ----------
$1,426,476 $7,688,254
========== ==========
</TABLE>
(8) Accounts Receivable
As of December 31, 1998, the Company is owed $137,970 from the California
Energy Commission related to renewable energy credits provided to the Company
for selling renewable energy to customers. The Company expects to collect this
amount in 1999.
F-12
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
(9) Short-Term Borrowings
The Company borrowed a total of $10,000,000 in September and October 1998
from a financing company, which was subsequently repaid with a portion of the
Investor'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. Certain companies, 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, the Company 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. The Company 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. The Company does not have any
derivative instruments at this time; however, such instruments may be embedded
in future electricity contracts.
The AICPA issued SOP No. 98-1, Software 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 Company does not expect that the
adoption of SOP No. 98-1 will have a material impact on its financial
statements.
(11) Subsequent Event--Unit Offerings
During 1999, the Company completed two private placement offerings. The
first offering, completed in January and early February 1999, was for
$10,000,000 from a sale of units to the Company's employees and certain
consultants. Net proceeds included $4,891,750 of cash and $5,108,250 of
promissory notes from employees and certain consultants. The second offering,
completed in mid-February 1999, resulted in net
F-13
<PAGE>
GreenMountain.com Company
Notes to Financial Statements--(Continued)
proceeds of $30,310,000. As a result of such purchases during the second
offering, Maverick Capital became the beneficial owner of 750,000 common units,
which will be represented by 1,875,000 shares upon the conversion from a
limited liability company to a corporation, for an aggregate purchase price of
$15.0 million. Evan Wyly, a Vice Chairman and a Director of the Company, is a
Managing Partner and H. Lee S. Hobson, a Company 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 500,000 common units, which
will be represented by 1,250,000 shares upon the conversion from a limited
liability company to a corporation, for an aggregate purchase price of
$10.0 million.
(12) Subsequent Event--Reorganization
In early 1999, the Company merged into a newly formed Delaware corporation,
which (i) was the entity surviving the merger, succeeding to all rights,
properties and obligations of the Company; (ii) is named GreenMountain.com
Company; and (iii) is taxable as a corporation. In connection with the
conversion, the limited liability company agreement will terminate, except for
certain covenants that, by their terms, require performance after the
termination of such agreement and each member will receive 2.5 shares of
GreenMountain.com common stock in exchange for each of its common units in the
limited liability company. All outstanding options and warrants exercisable for
common units in the limited liability company will be 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.
F-14
<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.
- --------------------------------------------------------------------------------
[LOGO]
Prudential Securities
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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................................ *
Printing costs.................................................... *
Legal Fees and Expenses........................................... *
Accounting Fees and Expenses...................................... *
Blue Sky Fees and Expenses........................................ *
Transfer Agent and Registrar Fees................................. *
Miscellaneous..................................................... *
--------
Total $ *
========
</TABLE>
- --------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers.
The information set forth under the caption "Management--Limitation of
Liability and Indemnification Matters" in the prospectus forming a part of this
Registration Statement is incorporated herein by this reference.
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 has 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 persons. The issuance of these warrants was exempt from
registration under Section 4(2) of the Act.
(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.
II-1
<PAGE>
(5) In January and early February 1999, membership interests in the LLC
were unitized and the LLC issued and sold 330,550 common units in the LLC
in a private offering to its employees under a compensatory plan in
exchange for an aggregate of $3,305,500, of which $1,279,500 was paid in
cash and $2,026,000 was paid using promissory notes payable to the LLC. 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 January and early February 1999, the LLC issued and sold 669,450
common units in the LLC in a private offering to its employees, consultants
and certain individuals who provided services to the LLC in exchange for an
aggregate of $6,694,500, of which $3,412,450 was paid in cash and
$3,282,050 was paid using promissory notes payable to the LLC. 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 in
the LLC in a private offering to certain individuals and entities in
exchange for an aggregate of $30,310,000 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.
Prior to the closing of this offering, the LLC will be merged into the
Registrant. In the merger, each member in the LLC will receive 2.5 shares of
Registrant's common stock in exchange for each of its common units in the LLC.
In addition, all outstanding options and warrants exercisable for common units
in the LLC will be 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 Form of Agreement and Plan of Merger by and between the LLC and
the Registrant*
3.1 Certificate of Incorporation of the Registrant*
3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant*
3.3 Bylaws of the Registrant*
3.4 Form of Amended and Restated Bylaws of the Registrant*
4.1 Form of Certificate for the Registrant's Common Stock*
5.1 Opinion of Jones, Day, Reavis & Pogue*
10.1 The Amended and Restated Operating Agreement of the LLC, dated as
of January 4, 1999*
10.2 First Amendment to the Amended and Restated Operating Agreement
of the LLC, dated as of March 22, 1999*
10.3 Employee Unit Purchase Plan, as amended*
10.4 1997 Employee Ownership Plan of the LLC*
10.5 1999 Unit Option Plan of the LLC*
10.6 Form of 1999 Stock Option Plan of the Registrant*
10.7 Employment Agreement, dated as of August 6, 1997, by and between
the LLC and M. David White*
10.8 Employment Agreement, dated as of August 6, 1997, by and between
the LLC and Douglas G. Hyde*
10.9 Separation Agreement and Release, dated as of October 6, 1998, by
and between the LLC and Douglas G. Hyde*
10.10 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*
10.11 Form of Operating Management Interest 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-2
<PAGE>
<TABLE>
<C> <S>
10.12 Form of Supervisory Management Interest 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*
10.13 Letter Agreement, dated as of February 5, 1999, by and between
the LLC and Dennis M. Crumpler*
10.14 Form of Indemnification Agreement*
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 (included on page II-4)
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
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 Maltzman pursuant to Rule 438 under the Act
</TABLE>
- --------
* To be filed by amendment.
(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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of South
Burlington, State of Vermont, on March 29, 1999.
GREENMOUNTAIN.COM COMPANY
By: /s/ M. David White
----------------------------------
M. David White
Chief Executive Officer
POWER OF ATTORNEY
Know all persons by these presents that each individual whose signature
appears below constitutes and appoints Sam Wyly, Evan A. Wyly, M. David White
and Peter H. Zamore, and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462 promulgated
under the Securities Act of 1933, as amended, and all post-effective amendments
thereto, and to file the same, with all exhibits thereto and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing advisable or necessary
to be done in connection with or relating to the offering covered by this
Registration Statement, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, or his or their substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on the 29th day of March, 1999, by or on
behalf of the following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ M. David White Chief Executive Officer
___________________________________________ (Principal Executive Officer)
M. David White
/s/ K. Scott Canon Chief Financial Officer
___________________________________________ (Principal Financial Officer)
K. Scott Canon
/s/ Michael Bursell Controller
___________________________________________ (Principal Accounting Officer)
Michael Bursell
/s/ Sam Wyly Director
___________________________________________
Sam Wyly
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Dennis M. Crumpler Director
___________________________________________
Dennis M. Crumpler
/s/ Evan A. Wyly Director
___________________________________________
Evan A. Wyly
/s/ H. Lee S. Hobson Director
___________________________________________
H. Lee S. Hobson
/s/ Lisa Wyly Director
___________________________________________
Lisa Wyly
</TABLE>
II-5
<PAGE>
After the reorganization transaction discussed in Note 12 to
GreenMountain.com Company's financial statements is effected, we expect to be
in a position to render the following audit report.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 29, 1999
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 index above 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.
<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 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
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
statement of operations and the balance sheets and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> FEB-26-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,933,403
<SECURITIES> 0
<RECEIVABLES> 16,457
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,586,092
<PP&E> 1,335,836
<DEPRECIATION> 67,128
<TOTAL-ASSETS> 4,183,365
<CURRENT-LIABILITIES> 2,445,379
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 1,731,986
<TOTAL-LIABILITY-AND-EQUITY> 4,183,365
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,905,101
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,862,014)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,862,014)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,862,014)
<EPS-PRIMARY> (26.17)<F1>
<EPS-DILUTED> (26.17)<F2>
<FN>
<F1>EPS - Primary is EPS Basic per SFAS 128
<F2>EPS - Fully Diluted is EPS - Diluted per SFAS 128
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATIONS AND THE BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 5,653,854
<SECURITIES> 0
<RECEIVABLES> 729,188
<ALLOWANCES> 34,956
<INVENTORY> 0
<CURRENT-ASSETS> 9,690,761
<PP&E> 2,133,886
<DEPRECIATION> 766,526
<TOTAL-ASSETS> 11,058,121
<CURRENT-LIABILITIES> 11,959,200
<BONDS> 0
0
0
<COMMON> 150,000
<OTHER-SE> (1,051,079)
<TOTAL-LIABILITY-AND-EQUITY> 11,058,121
<SALES> 1,530,496
<TOTAL-REVENUES> 1,530,496
<CGS> 1,097,379
<TOTAL-COSTS> 1,097,379
<OTHER-EXPENSES> 46,465,132
<LOSS-PROVISION> 34,956
<INTEREST-EXPENSE> 7,050
<INCOME-PRETAX> (46,039,065)
<INCOME-TAX> 0
<INCOME-CONTINUING> (46,039,065)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,039,065)
<EPS-PRIMARY> (7.27)<F1>
<EPS-DILUTED> (7.27)<F2>
<FN>
<F1>EPS - PRIMARY IN EPS BASIC PER SFAS 128
<F2>EPS - FULLY DILUTED IS EPS - DILUTED PER SFAS 128
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.1
March 18, 1999
GreenMountain.com Company
55 Green Mountain Drive
South Burlington, Vermont 05407-2206
Re: Consent to Being Named in Registration Statement
------------------------------------------------
Gentlemen:
Pursuant to Rule 438 of the Securities Act of 1933, as amended, I hereby
consent to my being named as a person who is to become a member of the Board of
Directors of GreenMountain.com Company (the "Company") in the Company's
Registration Statement on Form S-1.
Sincerely,
/s/ MARK CUBAN
----------------------------------------
Mark Cuban
<PAGE>
EXHIBIT 99.2
March 25, 1999
GreenMountain.com Company
55 Green Mountain Drive
South Burlington, Vermont 05407-2206
Re: Consent to Being Named in Registration Statement
------------------------------------------------
Gentlemen:
Pursuant to Rule 438 of the Securities Act of 1933, as amended, I hereby
consent to my being named as a person who is to become a member of the Board of
Directors of GreenMountain.com Company (the "Company") in the Company's
Registration Statement on Form S-1.
Sincerely,
/s/ RICHARD HANLON
----------------------------------------
Richard Hanlon
<PAGE>
EXHIBIT 99.3
March 23, 1999
GreenMountain.com Company
55 Green Mountain Drive
South Burlington, Vermont 05407-2206
Re: Consent to Being Named in Registration Statement
------------------------------------------------
Gentlemen:
Pursuant to Rule 438 of the Securities Act of 1933, as amended, I hereby
consent to my being named as a person who is to become a member of the Board of
Directors of GreenMountain.com Company (the "Company") in the Company's
Registration Statement on Form S-1.
Sincerely,
/s/ REED MALTZMAN
----------------------------------------
Reed Maltzman
