PART I
Item 1. Description of Business.
This item contains forward-looking statements that involve uncertainties. Actual results could differ materially from those in the forward-looking statements due to a number of uncertainties, including, but not limited to those discussed below and in Part II, Item 6 "Management's Discussion and Analysis or Plan of Operations - Uncertainties Relating to Forward Looking Statements."
The Company was formed primarily as the result of the merger of PTC Holdings, Inc., a Delaware corporation, into PTC Group, Inc., an Idaho corporation. In July 1999, PTC Group, Inc. changed its name to Ocean Power Corporation and then changed its state of incorporation from Idaho to Delaware. The Company was a development stage company that intended to engage primarily in the business of developing and marketing water desalination and renewable power generation systems that were modular and mass produced.
The Company had a history of being financed primarily by raising capital through private placements of its stock and/or loans from third parties. The proceeds from the financing had been used to develop the Company's technologies, pursue acquisitions and make strategic alliances and pay operating costs. In September 2002, the Company was without sufficient capital to continue to operate and had been unable to identify sources of additional financing. The Board of Directors of the Company (the "Board") was concerned that a sudden cessation of operations would not provide the best means to maximize asset values. Therefore, at an October 3, 2002 meeting, the Board approved a resolution to commence negotiations with the Company's secured creditors, Algonquin Capital Management, L.L.C. ("Algonquin") and Hibernia Capital Management, L.L.C. ("Hibernia"), to commence a voluntary bankruptcy filing under Chapter 11 of the U.S. Bankruptcy Code ("Code"), and immediately thereafter, a sale of the Company's assets pursuant to Section 363 of the Code.
During the preceding twelve months, the Company had endeavored to stem severe cash flow shortages through, among other things, workforce and overhead reductions, and the consolidation of its business operations. Due to persistent cash flow shortages, the Company terminated substantially all of its employees.
As a result of a confluence of events, including a general contraction of available financing from capital markets and the then recent bankruptcy in Norway of Sigma Elektroteknisk, AS, a wholly owned subsidiary, at a Special Meeting of the Board on November 27, 2002, the Board unanimously consented to authorizing the Company to file a voluntary petition under Chapter 11 of the Code.
On December 1, 2002, the Company filed a voluntary petition under Chapter 11 of the Code with the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court") (that and all subsequent related action, collectively, the "Bankruptcy Case"). On December 16, 2002, the United States Trustee appointed a creditors' committee pursuant to Section 1102(a) of the Code (the "Committee").
Simultaneously with filing the Chapter 11 petition, the Company filed an emergency motion to authorize it to obtain loans and advances under a Debtor-In-Possession Loan Agreement with Algonquin in order to continue operations so that the Company could attempt to maximize the value of its assets. The Bankruptcy Court entered an interim order approving the financing on December 5, 2002 and a final order was entered on December 20, 2002. In addition, the Company filed a motion in the Bankruptcy Case pursuant to Section 363 of the Code to approve the proposed sale of substantially all of its assets to Algonquin and Hibernia, subject to higher and better offers. By order dated February 6, 2003, the Bankruptcy Court authorized the asset sale agreement with Algonquin and Hibernia as modified by the Creditor Settlement Agreement and assumption and assignment of certain executory contracts, licenses and intellectual property rights for a credit bid of $2,000,000. As part of the Creditor Settlement Agreement, Algonquin and Hibernia reconveyed to the bankruptcy estate a 60% ownership in the Water Assets of the Company ("Water Assets"). The Bill of Sale consummating the sale was signed on February 19, 2003 (the "Primary Asset Sale").
Having sold its assets and ceased operations, the Company was not in a financial position to support the on-going operations needed to develop the Water Assets. On May 20, 2003, the Bankruptcy Court approved the sale of the Company's interest in the Water Assets to Oases Desalination International, Ltd.
("Oases") in exchange for their covenant to commercialize those assets and make certain royalty payments. Although it made certain minimal payments, Oases immediately defaulted in certain pre-closing obligations and never consummated a closing under the agreement. Subsequently, Oases and ReEnergy Group entered into as asset purchase agreement in which Oases would sell all of its assets, including the Water Assets, to ReEnergy Group. Because Oases was in default with the Company and had not paid for the Water Assets and/or closed on the
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transaction, Oases and Renergy Group sought the Company's consent wherein ReEnergy Group would directly purchase the Water Assets from the Company. After significant negotiations, the Committee, Oases and ReEnergy Group entered into the Consent Agreement, in order to, among other things, provide the Company's consent to transfer the Water Assets to ReEnergy Group for a modified consideration of $750,000 for the Water Assets. On October 26, 2005, an application was filed with the Bankruptcy Court to approve this arrangement and the arrangement was approved by order dated November 16, 2005 (the "Water Assets Sale", and together with the Primary Asset Sale, the "Asset Sales"). The Company has received all of the funds in this transaction, which are being held in an account maintained by bankruptcy counsel for the Committee.
Currently, the Company has no operations and no assets other than approximately $227,210 in cash.
In October of 2006, the Company signed a term sheet, subsequently amended on September 18, 2007, with Trinad Capital Master Fund Ltd. (the "Plan Sponsor") to sponsor a Chapter 11 plan of reorganization, which was filed with the Bankruptcy Court on January 15, 2008 ("Plan"). The Plan identifies NorthStar Systems International, Inc. as a potential merger candidate to be merged into the Company ("Merger Candidate"). Under the terms of the proposed Plan, the Plan Sponsor would pay $500,000 to the Company's estate, and creditors of the Company would receive a pro rata cash payment and stock consideration in the newly merged entity. The aforementioned consideration would be distributed to unsecured creditors of the Company under the proposed Plan. If the existing unsecured creditors of the Company approve the Plan, the creditors and the existing stockholders of the Company would own approximately 6% and 1%, respectively, of the merged company; provided, however, that in the event that the unsecured creditors vote as a class to reject the Plan and the Plan is confirmed under the cram-down provisions of Section 1129(b) of the Code, the creditors and the existing stockholders of the Company would own approximately 4% and 0%, respectively, of the merged company. The merger contemplated by the Plan would be subject to various closing conditions including, without limitation, (i) confirmation of the Plan, (ii) the negotiation and execution of definitive documents in form acceptable to the Plan Sponsor and the Merger Candidate, (iii) the satisfactory completion of the Plan Sponsor's due diligence on the Merger Candidate, and (iv) the absence of any material adverse change in the business of the Merger Candidate. The merger would be consummated pursuant to a merger agreement, which would contain, among other things, detailed and appropriate representations and warranties, affirmative and negative covenants and closing conditions customary for transactions of that type. The Plan Sponsor may withdraw at any time prior to the confirmation of the Plan and gives no assurance that agreement will be reached with the Merger Candidate with respect to the terms of such merger agreement.
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