UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 18, 2004
POWER EFFICIENCY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-31805 22-3337365
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(State or other jurisdiction Commission File Number (IRS Employer
of incorporation) Identification No.)
35432 Industrial Road; Livonia, MI 48150
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (734) 464-6711
4220 Varsity Drive, Suite E; Ann Arbor, Michigan 48108
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(former address)
Item 5. Other Events and Required FD Disclosure.
Three separate events are disclosed in this Item 5 of this Form 8-K.
Reverse Stock Split
On Monday March 1, 2004, Power Efficiency Corporation, a Delaware corporation
(the "Registrant" or the "Company") will effect a one-for-seven reverse split of
its common stock. Each shareholder of common stock will receive one share of
common stock for every seven shares of common stock held prior to the reverse
stock split. The number of shares a shareholder will receive after the split
will be rounded up in cases where the shareholder does not hold, on the record
date, a number of shares that is divisible by seven. The number of shares of
common stock the Company's outstanding options and warrants are exercisable for
and the number of shares of common stock the Company's Preferred Stock are
convertible into will be automatically adjusted to reflect the reverse split of
the Company's common stock.
Warrant Exercise
On February 18, 2003, the majority shareholder of the Company gave notice to
exercise a warrant it held to purchase shares of the Company's common stock. The
shareholder exercising the warrant was Summit Energy Ventures, LLC, a Delaware
limited liability company ("Summit"). The warrant was issued to Summit in June
of 2002 in connection with a financing transaction where Summit invested
$2,500,000 in the Company. The warrant was amended in May of 2003 in connection
with a second financing transaction where Summit invested another $950,000 in
the Company.
The warrant described above, as amended (the "Summit Warrant"), gave Summit the
right to purchase such number of shares that, when combined with the 2,346,233
shares of Series A-1 Preferred Stock purchased by Summit in June of 2002 but
excluding the other shares held by Summit, would give Summit a 60.53% interest
in the Company, on a fully diluted basis. The strike price of such shares is a
function of the Company's earnings and, consequently, the strike price on the
date of exercise was zero.
The number of shares of common stock the Summit Warrant was exercisable for on
the date of the notice was 24,228,999. According to the terms of the Summit
Warrant, the calculation of the number of shares outstanding on a fully diluted
basis includes all shares authorized under the Company's stock option plans and
all warrants issued by the Company that are still outstanding. Because not all
of the shares authorized under the Company's stock option plans were issued, and
because certain options and warrants issued by the Company had strike prices
that were considerably higher than the current market price, Summit volunteered
to reduce the number of shares it was entitled to under the Summit Warrant. The
Company and Summit believe that because these options and warrants were
significantly "out of the money", they were unlikely to be exercised. After
negotiation between the Company and Summit and an examination of how many
options and warrants were significantly "out of the money", the Company and
Summit Executed a Warrant Agreement, dated February 26, 2004 (filed herewith as
Exhibit 10.1) to exercise the Summit Warrant for 21,938,709 shares of common
stock (2,290,290 fewer shares than Summit was entitled to) as full performance
under the Summit Warrant.
Including the 21,938,709 shares of common stock issued to Summit pursuant to the
Summit Warrant, the Company currently has 35,028,516 shares of common stock
outstanding. Additionally, the Company has 3,328,737 shares of Series A-1
Convertible Preferred Stock outstanding, all of which are held by Summit. Each
share of Series A-1 Convertible Preferred Stock is currently convertible into
5.83 shares of common stock. The conversion ratio will change in the event that
the Company issues shares of common stock at a price below 18.3 cents per share.
The 3,328,737 shares of preferred stock outstanding are currently convertible
into 19,381,941 additional shares of common stock.
Stockholders' Agreement
Certain shareholders of the Company were parties to an Amended and Restated
Stockholders' Agreement dated June 14, 2002 (the "Amended Stockholders
Agreement"). This agreement provided that it would terminate automatically upon
certain events, including the exercise of the Summit Warrant described above.
The Summit Warrant was exercised on February 18, 2004 resulting in the automatic
termination of the Amended Stockholders' Agreement.
A few of the key provisions of the Amended Stockholders' Agreement, which has
now been terminated, are described below:
The Amended Stockholders' Agreement established three groups of stockholders.
One group consisted of Messrs. Nicholas Anderson and Anthony Caputo, two of the
Company's founders (the "Founders"). The second group consisted of a holding
company called Performance Control, LLC, a Michigan limited liability company
and Messrs. Philip Elkus and Steven Shulman, (the "Percon Group"). Performance
Control was an affiliate of the Company which entered into an asset purchase
agreement whereby all of the assets of Performance Control were sold to the
Company in exchange for shares of the Company's common stock. Mr. Elkus is a
large shareholder of the Company and Mr. Shulman is the Company's former Chief
Executive Officer. The third "group" was Summit Energy Ventures, LLC, another
major shareholder of the Company.
The governance provisions of the Amended Stockholders' Agreement provided that
the Registrant's Board of Directors (the "Board") be expanded from five (5)
members to eight (8) members; three (3) who are nominated by the Founders; two
(2) who are nominated by the Percon Group; and three (3) who are nominated by
Summit. The Registrant's by-laws were amended to accurately reflect the
governance provisions of the Amended Stockholders' Agreement.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
Item 7(a) Financial Statements:
Not applicable.
Item 7(b) Pro Forma Financial Information:
Not applicable.
Item 7(c) Exhibits:
The following exhibits are filed as part of this report:
Description of Document Location
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10.1 Warrant Agreement with Summit Energy Ventures, LLC dated February 26, 2004. Filed herewith
10.2 Stock Purchase Warrant dated June 14, 2002. *
10.3 Certificate of Amendment of Warrant. **
10.4 Amended and Restated Stockholders' Agreement dated June 14, 2002. *
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* Previously filed by the Registrant as an Exhibit on Form 8-K on June 18, 2002.
** Previously filed by the Registrant as an Exhibit on Form 8-K on May 23, 2003.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
POWER EFFICIENCY CORPORATION
(Registrant)
Date: February 26, 2004 By: /s/ Richard Koch
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Richard Koch, President & CEO