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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number: 001-14176

EVERGREEN ENERGY INC.
(Exact Name of Registrant as specified in its Charter)

Registrant's Telephone Number, including area code: (303) 293-2992

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

          Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or section 15(d) of the Exchange Act. Yes o    No ý

          Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

          Indicated by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

          The aggregate market value of the common stock held by non-affiliates of the registrant was $88,236,019 computed by reference to the closing price of the common stock on June 30, 2009, the last trading day of the registrant's most recently completed second fiscal quarter.

          Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

DOCUMENTS INCORPORATED BY REFERENCE

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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K contains forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our future prospects, developments and business strategies.

        We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "will," "plan," "predict," "project" and similar terms and phrases, including references to assumptions, in this Annual Report on Form 10-K to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from our forward-looking statements:

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general economic and industry conditions;



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our history of losses, deficits and negative operating cash flows;



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our substantial capital requirements and dependence on future financings and the sale of our equity securities to provide capital to fund our operations;



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our ability to complete the sale of Buckeye;



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our limited operating history;



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technical and operational problems at K-Fuel facilities;



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uncertain market for GreenCert technology;



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industry competition;



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environmental and government regulation;



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protection and defense of our intellectual property rights;



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reliance on, and the ability to attract, key personnel;



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inability to implement our acquisition strategy; and



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other factors including those discussed under "Risk Factors" in Item 1A of this Annual Report on Form 10-K.

        You should keep in mind that any forward-looking statement made by us in this Annual Report on Form 10-K or elsewhere speaks only as of the date on which we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this Annual Report on Form 10-K after the date of this filing, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this Annual Report on Form 10-K or elsewhere might not occur.

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PART I

ITEM 1.    BUSINESS

        In this Annual Report on Form 10-K, we use the terms "Evergreen Energy," "we," "our," and "us" to refer to Evergreen Energy Inc. and its subsidiaries. C-Lock refers to our subsidiary C-Lock Technology, Inc. Buckeye refers to our subsidiary Buckeye Industrial Mining Co. All references to C-Lock®, GreenCert™, K-Fuel, K-Fuel®, K-Fuel process, K-Fuel refined coal, K-Fuel refineries, K-Direct®, K-Fuel Plants, K-Fuel facilities, K-Direct facilities and K-Direct® plants, refer to our patented processes and technologies explained in detail throughout this Annual Report on Form 10-K. All references to years, unless otherwise noted, refer to our fiscal year, which ends on December 31st.

        We were founded in 1984 as a cleaner coal technology, energy production and environmental solutions company focused on developing our proprietary technologies. In the last two years, we have sharpened our focus on positioning us as a carbon technology company. We have developed two proprietary, patented, and potentially transformative green technologies: the GreenCert suite of software and services and K-Fuel. Our GreenCert technology is a scientifically accurate and scalable environment intelligence solution that measures greenhouse gases (or GHG) and other environmental costs enabling customers to manage and report their environmental assets and liabilities. GreenCert, built on IBM's Service-Oriented Architecture (or SOA), is an environment intelligence solution that provides customers the end-to-end visibility and traceability necessary to measure their complete environmental footprint. K-Fuel, our clean coal technology significantly improves the performance of low-rank coals yielding higher efficiency and lower emissions.

        Over the past year, we have been evaluating several alternatives related to our strategic positioning, including the potential sale of certain assets, including Buckeye. On March 12, 2010, we signed a definitive agreement with Rosebud Mining Company for the sale of certain net assets of both Buckeye and Evergreen, which we refer to as the "sale of Buckeye", for $27.9 million, in addition to the release of $5.0 million of cash reclamation bonds. Further, $2.8 million of the purchase price will be deposited into escrow for a period of twelve months to cover amounts payable to Rosebud pursuant to the indemnification provision of the sales agreement. The closing is not subject to a financing condition, but is subject to the satisfaction of customary closing conditions, including, among other matters, (i) accuracy of the representations and warranties and compliance with the covenants set forth in the agreement, each in all material respects, (ii) receipt of legally required regulatory approvals, and (iii) consents of certain governmental authorities and certain of Buckeye's specified contractual counterparties. The sale is expected to close in April 2010, but in any event no later than June 30, 2010. The proceeds from the sale of Buckeye will be used to retire the outstanding 2009 Notes including fees and accrued interest of $21.1 million, to fund related transaction expenses estimated at $2.5 million and for general working capital purposes.

        With the sale of Buckeye we will be able to better focus our resources on core business activities, our GreenCert and K-Fuel technologies. We terminated the contemplated K-Fuel spin-off as previously announced. Concurrently, Evergreen-China Energy Technology Co., Ltd. ("Evergreen-China"), a Sino-US joint venture between Evergreen Energy and a Chinese investor, signed a letter of intent with a large Chinese integrated utility and chemical manufacturer to build a K-Fuel plant in Inner Mongolia to produce K-Fuel from low-ranked lignite feedstock.

        As the business environment changes, our ongoing business plan may be altered. The following discussion addresses the current aspects of our business.

GreenCert

        We are continuing the development of our GreenCert suite of software and services. GreenCert is an accurate and scalable environmental intelligence solution that quantifies greenhouse gas emission

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avoidances and reductions and generates verifiable emissions offsets. GreenCert provides real-time, multiple method data analysis to increase accuracy and reduce uncertainty to quantify incremental improvements. GreenCert also enables enterprises to reduce overall costs via the identification of significant operational efficiencies, compliance and risk reduction and sustainability measures. We intend to sell GreenCert as an on-premise offering and as a hosted software as a service (or SaaS) solution, both with annual licensing and renewal fees.

        GreenCert is a software framework that is both generally applicable to all industries and customizable for client and industry specifics and currently has two environmental intelligence solution sets: Energy/Utilities and Agriculture. The GreenCert Energy Solutions suite offers three levels: Reporting, Analytics and Enterprise. GreenCert Reporting contains baseline emissions tracking, an interface for emissions data entry, and base level reporting and dashboard capability. GreenCert Analytics offers reporting plus forward modeling and analysis tools. GreenCert Enterprise contains all of the components of GreenCert Analytics with the additional capability of an enterprise SOA solution which automates the quantification and verification of emission reductions. GreenCert Agriculture offers the unique ability to scientifically quantify, on a per field basis, soil carbon sequestration and generate terrestrial emission reduction offsets. GreenCert greenhouse gas consulting services are available to conduct environmental and efficiency assessments, to quantify footprints, and to provide utility, agricultural, and environmental expertise. All GreenCert products and services fall within the Enterprise Carbon Management solutions market as a broad class of solutions that cuts across industrial sectors to offer services, reporting, efficiency auditing, and emission reduction offsets for emitters of greenhouse gases.

        Evergreen Energy's GreenCert solutions are designed to be indifferent to legislation and meet and/or exceed any governmental mandate. Our scientifically rigorous solutions contain a flexible information technology backbone which can be adapted to any regulatory environment. Regardless of any new legislation, the efficiency and accuracy improvement that are obtained within the GreenCert Energy Solution appeals to utilities and provides a platform to prepare for future legislative or regulatory changes. Greenhouse gas regulation of any form will only enhance the market appeal for our GreenCert products.

        We have a three-phase plan to implement GreenCert at client locations. In the first phase, GreenCert quantifies the client's baseline emissions status and the accuracy of the methodology and data used. In the second phase, we assess and identify the capital expenditure and operating expense improvements that drive efficiencies within the client or specific plant and determines the GHG savings associated with those efficiency improvements. This phase also evaluates methods to reduce the uncertainty of the GHG measurement to improve accuracy. Combined, the first two phases deliver the GHG assessment and result in an understanding of the return on investment for employing the third phase. In this final phase, we deploy the site-specific, highly-customized solution that enables the quantification and monetization of the emissions reductions and efficiency improvements. The deployed solution then also enables further improvements to be quantified and monetized going forward.

        We continue to identify potential future strategic partners for GreenCert, in addition to IBM Corp. and Enterprise Information Management Corp (or EIM), to assist in the development, testing and roll-out of its products. Potential partners include companies offering services or products such as: energy engineering consulting; power generation performance optimization; environmental consulting; and products relating to sensor systems and devices, data collection devices, or other products that support energy or power plant operations. On November 5, 2009, we announced that GreenCert was validated on IBM's Solution Architecture for Energy and Utilities (or SAFE) framework, the software technology backbone that makes a wide range of utility solutions possible by helping clients build a standards-based integrated platform across the clients' entire operations and energy value chain. GreenCert will be marketed across the globe through the SAFE framework validation. Also on November 5, 2009, we announced our partnership with Black & Veatch to deploy GreenCert to the

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global power generation market. Black & Veatch expects to provide integrated emissions and performance management solutions by leveraging GreenCert for additional customer needs and requirements.

K-Fuel

        Through our proprietary K-Fuel process we intend to meet the specific needs of public utility, industrial and international customers by providing economical solutions for energy supply, energy efficiency and compliance with environmental emission standards. Additional markets served by our K-Fuel process include mines looking to expand the market for their low rank coal by transforming it into a higher value fuel and chemical manufacturers using coal as a feedstock. Our K-Fuel process uses heat and pressure to physically and chemically transform high-moisture, low-Btu coals, such as sub-bituminous coal and lignite, into a more energy dense, energy efficient, lower-emission fuel. The inherent efficiency of higher Btu-lower moisture coal improves power plant performance and reduces emissions on a per kilowatt-hour-generated basis. We believe that China presents the best opportunity to develop the K-Fuel technology because of its plentiful reserves of high-moisture, low-Btu coals, its rapid growth in electric power demand and its lower construction and manufacturing costs. The goal of our K-Fuel technology is to transform those lower-rank coals into more efficient and environmentally compliant fuels in order to meet the increasing demand for energy in an optimal fashion. As mentioned above Evergreen-China continues discussions with a Chinese conglomerate for the potential construction of a K-Fuel plant in Inner Mongolia. See further discussion of the K-Fuel business under Business History.

Segments

        Our segments include the GreenCert segment, the Plant segment, the Mining segment and the Technology segment. The GreenCert segment reflects activities related to the measurement of greenhouse gases and certification of environmental improvements such as carbon credits. The Plant segment primarily represents revenue and costs related to our Fort Union plant near Gillette, Wyoming, at which we suspended operations in March 2008. The Mining segment primarily represents our mining operations of our subsidiary Buckeye, and includes certain marketing capabilities such as an ash disposal facility and a coal preparation and blending facility. The Technology segment is comprised of all other operations that use, apply, own or otherwise advance our proprietary patented K-Fuel process, including our headquarters and related operations, around activities of KFx Technology, LLC, which holds the right to issue licenses of the K-Fuel technology. Corporate costs within our Technology segment are allocated to our other segments, generally based on a percentage of the number of employees, total segment operating expenses, or segment operating expenses plus segment capital expenditures. We will continue to evaluate how we manage our business and, as necessary, adjust our segment reporting accordingly.

Business Strategy

        The principal elements of our long-term strategy are to focus our efforts and resources on building our GreenCert and K-Fuel businesses through a combination of organic growth, acquisitions and joint ventures and to complete the sale of our Buckeye operations. We plan to focus on the following strategies.

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Develop and Market GreenCert.  We believe there is opportunity both domestically and internationally to market, license and sell our environmental intelligence and greenhouse gas software solutions and services. We believe that there is a unique opportunity for these services around the world. As "cap-and-trade" and other cap and carbon taxation programs seeking to limit emissions take hold, the global trading of emission reduction offsets is expected to expand,

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along with the need for accurate and precise measurements of emissions and the verification of emissions offsets.

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Enter into Strategic Arrangements, Leverage Distribution Channels and Advance Relationships with Original Equipment Manufacturers (OEMs).  We have strategic arrangements and believe there are additional opportunities to further expand GreenCert through new relationships. Evergreen Energy has agreements with Foxconn Technology Group related to the Asia-Pacific Rim region and Crowley-Shindler in the Eastern European region. Both of these relationships provide for the marketing and further licensing of GreenCert solutions within these geographic regions. As further described above, we have relationships with IBM, EIM and Black & Veatch that we believe will present us opportunities to reach a broad-base of energy and utility customers. Our solutions require implementation services, infrastructure for support and hardware and advisory services—we therefore believe that these relationships will present us opportunities to broaden the market reach of our solution by using our partners' sales programs and sales channels.



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Complete Assessments and Pilot Deployments and Enter into GreenCert Licensing Agreements.  We intend to complete assessments to determine and identify capital expenditure and operational improvements that result in efficiency improvements and therefore GHG emissions reductions. After this initial phase, we expect to implement pilot deployments at specific, individual customer sites using customer data to quantify these reductions and accurately determine the return on investment related to such improvements. Finally, we plan to license GreenCert as an on-premise offering and as a hosted SaaS solution, both with annual licensing fees and renewal fees. Our solutions will require consulting and implementation services.



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Pursue Strategic Growth Through Acquisitions and Joint Ventures.  We believe we are positioned to pursue selected acquisitions and attract industry joint venture partners to continue our strategic development. Our investments in GreenCert and K-Fuel are consistent with our integrated technology strategy. We expect to pursue acquisitions of, or joint ventures with, companies that have operations complementary to our business model and strategy.



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Enter into K-Fuel Licensing Agreements.  We believe that there are potential opportunities to license our K-Fuel technology internationally to third parties principally in the Asia-Pacific Rim region due to its vast reserves of low-rank coal, rapid economic growth and interest in upgrading that coal to meet its increasing appetite for electric power and use in industrial applications including chemical manufacturing. Concurrently, Evergreen-China signed a Letter of Intent with a large Chinese integrated utility and chemical manufacturer to build a K-Fuel plant in Inner Mongolia to produce K-Fuel from low ranked lignite feedstock.



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Complete Sale of our Buckeye Subsidiary.  As discussed above, we have entered into an agreement for the sale of Buckeye. Per the terms of the agreement, Rosebud Mining Company will purchase certain assets of both Buckeye and Evergreen, generating aggregate proceeds of $27.9 million, in addition to the release of $5.0 million of cash reclamation bonds. The transaction is subject to customary closing conditions and the completion by Rosebud of due diligence. The sale is expected to close in April 2010, but in any event no later than June 30, 2010.

Competitive Strengths

        We believe we are uniquely positioned in the energy market as a result of the following strengths:

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Highly Accurate and Patented Solution.  The GreenCert carbon information management software solution and services stand as an innovative software-based solution for the complex process of accurate, precise, transparent, verifiable and scientifically defensible quantification of greenhouse gases, emission reductions, and offsets. Uncertainties and costs associated with greenhouse gas

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measurement remain key issues for the emerging global carbon marketplace. The Federal Trade Commission has held hearings on guidelines for the sale of "carbon credits" and Congress has held hearings and is considering legislation to enact federal oversight of carbon markets. Also, in 2009, the Environmental Protection Agency (or EPA) took actions to require reporting of GHG emission and to include best available control technology for GHG emissions when initiating or renewing permits under the Clean Air Act. See further discussion under "Environmental Regulation Affecting Our Market". Through GreenCert, we offer a scientifically defensible, intelligence software and system solution to accurately measure greenhouse gas emissions and create verifiable and certifiable emission reduction credits that is also designed to be indifferent to legislation enacted.

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Scalable, Enterprise-wide Solution.  We believe that other greenhouse gas measurement methods are cumbersome and inadequate. They are expensive, ad-hoc and can be unreliable. The solutions from these companies focus on mandatory and voluntary reporting of greenhouse gases. As such, they do not offer the ability to quantify incremental improvements as monetizable offsets, which is a unique feature of GreenCert. GreenCert is positioned within the energy and utilities market segment to function as an integral middleware for plant operations to optimize efficiency and greenhouse gas management, not just as a reporting solution.



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Strong Base of Technical Experience and Expertise.  We have developed an employee population that is highly qualified and experienced in our GreenCert solution and in carbon management. Our experience and expertise includes carbon measurement, carbon emission modeling, power generation, soil carbon sequestration, and nitrogen oxides and sulfur dioxide reduction analysis. In addition, we have developed strong relationships and strategic partners to support our GreenCert solution, including IBM, EIM, and Black and Veatch, each of which has significant experience in the development, marketing and sale of software solutions.

Our K-Fuel employees and consultants have a wide range of technical experience and expertise in refining coal, coal thermal upgrading, thermal processing, coal gasification, coal liquefaction, chemical engineering, power plant engineering and process engineering.

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High Btu, Low Emission K-Fuel Refined Coal.  We have been able to convert thousands of tons of low-Btu sub-bituminous coals and lignites into K-Fuel refined coal, with higher Btu's and lower emissions, that is a replacement for dwindling supplies of higher quality coals. The EPA will likely impose strict mercury emission rules on a plant-by-plant basis due to the U.S. Supreme Court's rejection of a utility industry's appeal of a lower court ruling which vacated the "Clean Air Mercury Rule". Mercury reduction in coal is one of several environmental improvements where the K-Fuel process performs exceedingly well. With key congressional committees working to enact a "cap-and-trade" greenhouse gas emission or other carbon taxation bill in the future, and with groups of states rolling out regional limitations on sulfur dioxide, mercury, oxides of nitrogen and carbon dioxide emissions, K-Fuel's ability to reduce those emissions, including a potential 8% carbon dioxide reduction, stands out as a marketplace advantage. We believe K-Fuel industrial customers that use our K-Fuel refined coal or blended K-Fuel refined coal will be able to cost-effectively boost efficiency and will reduce these emissions without adding new, expensive, post-combustion cleanup equipment. Power generating facilities that burn our K-Fuel refined coal or blended K-Fuel refined coal instead of unrefined high Btu coal are expected to realize lower emissions and experience significant savings as a result of reducing the need to purchase carbon dioxide, sulfur dioxide, nitrogen oxide and mercury credits in order to comply with environmental regulations.



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Provide Flexibility in Feedstock.  Coal-fired power plants and industrial users with post-combustion pollution controls may see improved pollution control performance by using our K-Fuel refined coal or blended K-Fuel refined coal and will benefit from the ability to use alternative feedstock

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in addition to their traditional feedstocks or to blend with their traditional feedstocks. We believe that Carbon Capturing and Storage Technology, or CCS, especially a class of clean coal technology that integrates coal gasification with carbon capture and storage referred to as IGCC-CCS, will perform better if the quality of its coal feedstock is upgraded through the K-Fuel process.

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Key Industry Relationships.  In GreenCert, not only have we built strong alliances with IBM, EIM and Black and Veatch, but also strategic marketing partners in Asia and Eastern Europe. K-Fuel also benefits from key industry relationships, which we believe will assist us in the development, deployment and marketing of our K-Fuel and GreenCert technologies.

Competition

        We believe our GreenCert solution is a first-of-its-kind, web-based platform that accurately measures incremental greenhouse gas emission reductions and can certify these environmental improvements as emission offsets to meet any regulatory environment. There are other companies that have developed systems that measure greenhouse gases and certify emission offsets, and our potential customer base can choose to use other Enterprise Carbon Management solutions instead of ours. In the last year a number of additional companies have entered the Enterprise Carbon Management solution space. According to Groom Energy there are 68 companies that have software packages for GHG/Enterprise Carbon Management Solutions and they anticipate the number of sellers to increase 600% by 2011.

        Our K-Fuel refined coal is a coal with characteristics of low-moisture, high-Btu content and low sulfur dioxide, nitrogen oxides and mercury emissions. The known direct competitors for K-Fuel refined coal include other coal upgrading processes, other high-Btu coal, low sulfur coal and advanced pollution control technologies. The indirect competition to K-Fuel refined coal includes electrical generation from natural gas, nuclear fuel, oil, wind, bio-fuels, and other renewable energy sources. Potential customers could choose to install pollution equipment instead of using our K-Fuel refined coal and/or choose to inject additives to reduce emissions. These alternatives include equipment such as low-nitrogen oxide burners, over-fire air systems, selective catalytic reduction systems, sulfur scrubbers, fabric filters, electrostatic precipitators, mercury control technology, or other equipment and adding limestone or other chemicals to combustion and waste stream.

Intellectual Property

        Our success depends in part on our ability to protect our intellectual property and to avoid infringement of the intellectual property of third parties. Our trademarked GreenCert solution embodies greenhouse gas measurement, certification and carbon information management software. The technology and patents provide for certification of emission offset reduction credits—essential to maximizing the value of credits in compliance and trading markets. We have the worldwide exclusive rights to various patents. The technology can be applied to measurements of any emissions offsets reduction or other environmental attributes. This proprietary process is web-based and has been integrated with IBM software products and tools.

        The patents which cover earlier versions of our K-Fuel technology are near their expiration dates. Patents which cover newer versions of that technology expire from 2018 through 2024. Our most recently issued patent covers most of the aspects of our K-Fuel process as it is currently conducted. As we make modifications and improvements to our proprietary process, we continue to evaluate our patent protection. As new improvements result, we would anticipate the filing of additional patent applications.

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Business History

        We were founded in 1984. We incorporated under the laws of the state of Delaware in 1988. Our principal executive offices are located at 1225 17^th Street, Suite 1300, Denver, Colorado 80202, and our telephone number is (303) 293-2992.

        GreenCert.    In December 2007, our subsidiary, C-Lock Technology, Inc., in conjunction with IBM and Enterprise Information Management, Inc. began developing a greenhouse gas solution called GreenCert. Certain aspects of GreenCert are patented and available to us through an exclusive licensing agreement. We continue to focus our efforts on further development and commercialization of our GreenCert solution.

        K-Fuel.    Over the past 25 years, we have been principally focused on the development of our K-Fuel technology. We have obtained multiple patents for different versions of the K-Fuel technology using a variety of methods to apply heat and pressure to process high moisture coal feedstocks. We have patents or patent applications for the K-Fuel technology issued or pending in the United States and various foreign countries. As we continue to develop and make enhancements to either technology or develop new technologies consistent with our business strategy, we anticipate expanding our patent coverage.

        Multiple laboratory and test burn results have independently verified the effectiveness of the K-Fuel process at removing significant amounts of mercury from lower-rank coals. The amount of mercury reduction varies depending on the coal source. The K-Fuel process can reduce mercury by up to 70% in Wyoming Powder River Basin coal. Tests on Indonesian coal showed a 56% mercury reduction, and a test burn of blended K-Fuel at a western Pennsylvania power plant achieved an almost 82% mercury emission reduction at the stack when compared to the mercury content of the coal normally burned at that plant.

        The current K-Fuel process applies heat and pressure to lower-rank coals with high water content, such as those found in Wyoming's Powder River Basin, to reduce moisture from approximately 30% in the low-Btu coal to 8%-14% in our K-Fuel refined coal. As a result, the heat value is boosted by 25% to 40%. The increase is variable depending on the type of coal processed and process conditions. We believe the process results in increased efficiency of the fuel needs in power generating, industrial and institutional facilities. Further, the K-Fuel process removes a significant amount of impurities from the lower-Btu coal, which we believe will allow the power generation industry and smaller industrial coal boilers to economically comply with increasingly stringent air emission standards and environmental regulations. The pre-combustion refinement of raw coal into K-Fuel refined coal reduces the mercury content, and upon combustion, sulfur dioxide and nitrogen oxides are also reduced. Our analysis also shows that burning K-Fuel refined coal with its increased efficiency will reduce carbon dioxide emissions by up to 8% on a per-kilowatt-hour generated basis.

        We, along with Bechtel Power Corporation, have completed the modifications and improvements of the design and efficiency of the equipment used in the K-Fuel process. Bechtel and Evergreen's operations teams at our Fort Union plant near Gillette, Wyoming completed successful testing of new operational systems that will support construction of future K-Fuel refineries, including an enhanced standard processing tower design. We believe this work signals that we have resolved the most substantive technical challenges to scaling and fully commercializing our production process.

        In March 2008, we suspended operations at our Fort Union plant in order to redirect constrained resources, both capital and human, to focus on the commercialization of this process in future K-Fuel

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plants. Suspending production at Fort Union enabled us to reduce our cash expenditures. The significant resources invested in the Fort Union plant served four important purposes:

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First, as an engineering and process improvement platform, the Fort Union plant allowed Evergreen and Bechtel engineers and scientists to improve the performance of the K-Fuel process.



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Second, Fort Union served as an important coal testing facility that allowed Evergreen to build a database of test results from more than 100 coal types drawn from across the globe.



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Third, Fort Union served as an important business development tool and production platform for thousands of tons of K-Fuel used for marketing and test burn purposes.



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Fourth, Fort Union served to produce K-Fuel at a commercial scale for customer test burns and purchase.

        Through the construction and limited operation of our Fort Union facility, which is the first plant utilizing the current version of our technology, we sought to further develop the application of our proprietary K-Fuel technology. As previously stated, the Fort Union plant has realized virtually all of the goals and objectives which we set forth, except for continuous production, and we suspended operations at this site. Also, during the last five years we have completed numerous evaluations to further test and improve our K-Fuel refined coal and process. During the years ended December 31, 2009, 2008 and 2007, our research and development costs were approximately $49,000, $79,000, and $876,000, respectively.

        In February 2007, we expanded our contractual relationship with Bechtel to assist with future designs of additional K-Fuel plants we may build or license. On September 19, 2007, we amended and restated our agreement with Bechtel. Through this new program management agreement, we committed to provide Bechtel with $1 billion in construction contracts through 2013. This restated agreement increases the scope of engineering, procurement and construction services which may be performed by Bechtel. Bechtel's services are available to oversee both technical development and implementation of new facilities and plants.

        Buckeye.    On April 3, 2006, we completed the acquisition of Buckeye for a total purchase price of $39.1 million, including cash paid, stock issued, liabilities assumed and costs incurred in the acquisition. Buckeye's primary business is to mine, process, blend and sell high-quality coal to electric utilities, industrial and institutional end users. Buckeye also operates one of the largest ash disposal facilities in the State of Ohio, disposing up to one million tons of dry and conditioned ash per year. On March 12, 2010, we signed a definitive agreement with Rosebud Mining Company for the sale of Buckeye for a purchase price of $27.9 million in cash payable at the closing of the transaction and the release of $5.0 million of reclamation bonds.

Customers

        As of December 31, 2009, two customers from our Mining segment accounted for 20% and 18% of total accounts receivable and three customers in our Mining segment accounted for 18%, 16% and 15% of total revenues for 2009. As of December 31, 2008, two customers from our Mining segment accounted for 32% and 20% of total accounts receivable and two customers in our Mining segment accounted for 20% and 9% of total revenues for 2008. As of December 31, 2007, three customers from our Mining segment accounted for 27%, 18% and 13% of total accounts receivable while two customers in our Mining segment accounted for 32% and 13% of total revenues for 2007. We believe the loss of any one of these customers would not have a material adverse effect on our financial position because we believe we would be able to sell our production to other customers at prevailing market prices.

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        Through March 2010, Buckeye has presold, for delivery in 2010, approximately 338,000 tons of coal pursuant to long-term contracts, which expire through 2012. Buckeye has committed to deliver, in 2010, approximately 529,000 tons of coal pursuant to customer purchase orders. The prices are generally tied to published indices. The prices range from $41.00 to $95.00 per ton net of transportation with average current prices of approximately $57.42 per ton. The prices vary depending on the characteristics of the coal. Currently, 95% of Buckeye's anticipated coal sales in 2010 will be delivered from the pre-sold and committed tons.

        Through March 2009, Buckeye had presold for delivery in 2009, approximately 335,000 tons of coal pursuant to long-term contracts, which expire through 2011. In 2009, Buckeye has committed to deliver approximately 375,000 tons of coal pursuant to customer purchase orders. The prices are generally tied to published indices. The prices range from $49.00 to $105.00 per ton net of transportation with an average current price of approximately $71.75 per ton. The prices vary depending on the characteristics of the coal.

        Through March 2008, Buckeye had presold, for delivery in 2008, approximately 500,000 tons of coal pursuant to long-term contracts which expire through 2012, at prices tied to various published indices. We expected these prices to range from $35 to $59 per ton in 2008. Buckeye had presold 400,000 tons for delivery in 2007 at prices ranging from $34 to $55 per ton. Pursuant to existing contracts, Buckeye has presold approximately 800,000 tons of coal for delivery through 2012 at pricing which are tied to various indices. In 2008 Buckeye had committed to deliver approximately 200,000 tons of coal pursuant to customer purchase orders at prices tied to various indices, with the expected price ranging from $39 to $74 per ton.

Environmental Regulations Affecting our Market

        The following summarizes federal, state, and international programs that may affect the market for our K-Fuel refined coal and for GreenCert products.

A.    Federal Requirements:

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National Ambient Air Quality Standards.  The Clean Air Act (CAA) requires that EPA set National Ambient Air Quality Standards (NAAQS), expressed as ambient concentration levels based on levels "requisite to protect" human health and welfare. NAAQS are established for six specific criteria pollutants (ozone; particulate matter (PM) and fine PM which are 2.5 microns or smaller; sulfur dioxides; nitrogen oxides (NOx); lead; and carbon monoxide). The NAAQS set to protect human health is called the primary standard, while the NAAQS established to protect welfare impacts, such as those on vegetation and visibility, is called the secondary standard. The primary standards have mandatory deadlines for attainment, whereas the secondary standards must be met as soon as practicable. The CAA requires EPA to review and, if appropriate, revise the NAAQS every five years.



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State Implementation Plans.  Once a standard is finalized, States are required to develop State Implementation Plans (SIP) that demonstrate how areas within each state will attain NAAQS by using a combination of "state" and "federally" imposed controls and measures affecting emission sources. Depending on how far out of attainment a county or area is determined to be, different deadlines to reach attainment may be set. The SIP must be submitted to EPA for formal approval. As part of the SIP, emission standards are set for "state-controlled" sources, and enforced on businesses through construction and operating permits, on transportation systems, and sometimes on commercial and consumer product content. A number of States have imposed stationary source controls on existing and new sources that are more stringent than the federal NAAQS standards would require.

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The Clean Air Act Acid Rain Program.  Title IV of the CAA separately regulates emissions of sulfur dioxide and nitrogen oxide from coal-fired power generating facilities. Specifically, title IV set a goal of reducing sulfur dioxide emissions by 10 million tons below 1980 levels and imposed a two-phased tightening of restrictions on fossil fuel-fired power plants. Phase I began in 1995 and focused primarily on coal-burning electric utility plants in the East and Midwest. In 2000, Phase II began and this phase tightened the annual emissions' limits on larger higher emitting plants and set restrictions on smaller, cleaner plants fired by coal, oil, and gas. The Acid Rain Program calls for a 2 million ton reduction in nitrogen oxide emission and focuses on one set of sources that emit nitrogen oxide: coal-fired electric utility boilers. Beginning in January 2000, nitrogen oxide emissions are to be reduced 900,000 tons per year beyond the 1.2 million per year reduction set by the EPA in 1995. Coal-fired electric utility boilers that are subject to the Acid Rain Program are required to report emissions of carbon dioxide along with their sulfur dioxide and nitrogen oxide emissions, but there is no required limit or control on the carbon dioxide emissions.



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Clean Air Interstate Rule.  The Clean Air Interstate Rule was finalized by the EPA in March 2005. Once fully implemented, this rule will reduce sulfur dioxide emissions in 28 eastern states and the District of Columbia by more than 70% and nitrogen oxide emissions by more than 60% from the 2003 levels. Through the use of a cap-and-trade approach, the rule promises to achieve substantial reduction of sulfur dioxide and nitrogen oxide emissions. Reduction of nitrogen oxide emissions began in January 2009, which was followed by reductions of sulfur dioxide emissions in January 2010. The program will be fully implemented by January 2015. This rule has been set aside by the U.S. Court of Appeals and the EPA is addressing that decision on remand.



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Clean Air Mercury Rule.  The U.S. Environmental Protection Agency, or EPA, finalized the Clean Air Mercury Rule, or CAMR, on March 15, 2005 to reduce mercury emissions from coal-fired power plants for the first time ever. Phase 1 of CAMR was set to go into effect on January 1, 2010. However, on February 8, 2008, the U.S. Circuit Court of Appeals for the District of Columbia vacated the rule, requiring the EPA to develop a new proposed utility mercury regulation. As a result of this ruling, it is likely that individual coal-fired boilers and power plants will be held to stringent levels of mercury emission reductions instead of averaging mercury emissions across multiple plants and across the country. EPA is currently developing air toxic emission standards for power plants under the Clean Air Act that are consistent with the U.S. Court of Appeals for the D. C. Circuit's decision and has stated its intention to finalize a regulation for coal and oil fired electric generating units in 2011.

        We believe that existing and proposed legislation and regulations could affect the profitability of fossil fuel-fired, and specifically coal-fired power generating facilities which can emit substantial levels of sulfur dioxide, nitrogen oxides, mercury and carbon dioxide into the environment. Regulation of these emissions can affect the market for our K-Fuel refined coal by imposing limits and caps on fossil fuel emissions. Regulation of carbon dioxide and other GHG's can also affect our GreenCert technology solutions by enhancing market opportunities. The most significant existing national legislation and regulations affecting our K-Fuel market include the Clean Air Act, the Clean Air Interstate Rule and the Clean Air Mercury Rule, which are implemented by the EPA as previously described.

        While carbon dioxide and other GHG emissions are not regulated at the federal level at this time, the U.S. House of Representatives passed a bill in June 2009 which would amend the Clean Air Act to impose an economy-wide cap on GHG emissions and set up an emissions trading system to help mitigate control costs. The U.S. Senate introduced a similar bill in 2009, but action on this bill has been stalled. Currently it is uncertain whether Congress will complete legislation which would create a federal-level GHG cap-and-trade system this year.

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        In 2009, the EPA initiated two actions which could potentially affect K-Fuel and GreenCert products. The first EPA action was a regulation for the Mandatory Reporting of Greenhouse Gases. The final rule for this regulation was published in the Federal Register in October 2009. This regulation does not limit or control GHG emissions, but requires reporting of GHG emissions from coal-fired power plants and other large industrial facilities starting with the 2010 calendar year. The second EPA action was issuance of the proposed rule for the Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, also published in the Federal Register in October 2009. This rule, if finalized, would regulate GHG emissions from coal-fired power plants and other large industrial facilities by requiring that these installations include best available control technology for GHG emissions when initiating or renewing permits under the existing Clean Air Act. The EPA Administrator has recently stated (February 2010 letter to Senator Rockefeller) that it plans to phase in the GHG permit requirements over time starting in 2011 with large stationary sources.

        In addition, the K-Fuel market will be affected by additional national policies including the EPA's Nitrogen Oxide State Implementation Plan Call, the EPA's National Ambient Air Quality Standards for ozone and fine particulate matter, and the Regional Haze Rules, which require emission controls for industrial facilities emitting air pollutants that reduce visibility by causing or contributing to regional haze.

B.    State and Regional Requirements

        State and regional policies will also impact our market. Important regional frameworks include The Regional Greenhouse Gas Initiative (RGGI), which requires reduction in carbon dioxide emissions from electric generating units, beginning in January 2009 in ten northeastern states. The Western Climate Initiative, a coalition including seven western states and four Canadian provinces as partners (although Arizona has recently announced that it will not continue to be a full partner), has developed a regional, economy-wide GHG cap-and-trade program, the first phase of which will start in 2012. In the Midwest, six states and one province are full members of the Midwestern Greenhouse Gas Reduction Accord with the aim of establishing a regional GHG cap-and-trade market system. Many states have at least nominal economy-wide greenhouse gas reduction targets. A number of these are based only on Executive Orders, so implementation is not assured. Many states have legislated greenhouse gas targets and/or utility performance standards including California, Connecticut, Illinois, Maine, Maryland, Massachusetts, Minnesota, Montana, New Jersey, Oregon, and Washington.

        The GHG emission reduction target set by state legislation is more stringent than the target set by RGGI, a regional cap-and-trade program to which Maryland belongs. RGGI caps carbon dioxide emissions for electric utilities and will achieve a 10 percent reduction in emissions from 2009 levels by 2018. Maryland's legislation also has a broader scope than RGGI, covering sources across the economy except the manufacturing sector.

        Many states also have mandatory GHG Reporting Requirements for utilities. For example, Washington, Oregon, California, New Mexico, Florida, Iowa, Wisconsin, North Carolina, Maryland, Delaware, Rhode Island, New Jersey, New York, Connecticut, Massachusetts, Vermont, New Hampshire, and Maine. All but 8 states have at least some voluntary reporting system, mostly through the Climate Registry. Many states are also implementing emission reduction policies more stringent than national policies with respect to mercury, SO₂ and NOx and visibility,

C.    International Markets

        Markets for K-Fuel and GreenCert products are also influenced by international regulations. While the Kyoto Protocol to the UN Framework Convention on Climate Change (UNFCCC), to which the US is not a party, expires in 2012, negotiations are well underway for a successor treaty that will be more broadly-based. Of primary importance to future coal markets are the positions of China and

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India, the two largest coal-based emerging economies. While both have resisted calls for firm greenhouse gas targets, both submitted voluntary commitments to the Copenhagen Accord, concluded in December 2009. India committed to a 20-25% reduction in the GHG intensity of its economy by 2020, compared to 2005, and China to a 40-45% reduction in conjunction with at least a 15% increase in renewable energy use. China in particular has been aggressively investing in renewable energy technologies such as wind and photovoltaic generation. At the same time, both countries are likely to remain heavy producers and consumers of coal-based energy for the foreseeable future, and increasing levels of environmental consciousness and regulation will likely heighten interest in the benefits of K-Fuel refined coal. The UNFCCC Clean Development Mechanism (CDM) provides market opportunities for GreenCert products in GHG reduction projects in developing countries such as China and India. Market opportunities in developed countries are provided by the UNFCCC Joint Implementation (JI) mechanism and the European Union Emissions Trading Scheme (EU ETS).

Environmental Regulations Affecting the Construction and Operation of our Plants and Mining of Coal

        As a general matter, we are subject to a number of state and federal regulations that (i) seek to limit the amount of certain emissions into the environment, (ii) govern the handling and disposal of solid waste materials as well as potentially hazardous materials, and (iii) impose certain employee safety requirements. As we expand our operations we may become subject to more regulation. For example, if we build additional plants we may install coal-fueled electric generating units, which are subject to substantial federal, state, and local permitting requirements and more environmental regulation than gas- fueled electric generating units. Through our mining activities, we are also subject to additional regulations including the Coal Mine Health and Safety Act of 1969, the Federal Mine Safety and Health Act of 1977, the Black Lung Benefits Revenue Act of 1977 and other regulations that seek to protect the health and safety of employees.

        In the United States, K-Fuel refined coal is not expected to be subject to unusual levels of local, state or federal regulation with respect to its transportation and distribution. However, any future production plants will require numerous permits, approvals and certificates from appropriate federal, state and local governmental agencies before construction of each facility can begin and will be required to comply with applicable environmental laws and regulations (including obtaining operating permits) once facilities begin production. The most significant types of permits that are typically required for commercial production facilities include an operating and construction permit and a wastewater discharge permit under the Clean Water Act, and a treatment, storage and disposal permit under the Resource Conservation and Recovery Act. Some federal programs have delegated regulatory authority to the states and as a result, facilities may be required to secure state permits. Finally, the construction of new facilities may require review under the National Environmental Policy Act, or a state equivalent, which requires analysis of environmental impacts and potentially, the implementation of measures to avoid or minimize these environmental impacts.

        Any international K-Direct or K-Fuel plants will also be subject to various permitting and operational regulations specific to each country. International initiatives, such as the Kyoto Protocol, are expected to create increasing pressures on the electric power generation industry on a world-wide basis to reduce emissions of various pollutants, which management expects will create additional demand for our products and services.

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Employees

        At March 12, 2010, we had 145 full-time employees of which 108 are employed at Buckeye.

Access to Information

        Our web site address is www.evgenergy.com. We make available, free of charge on the Investor Info section of our web site, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after these reports are electronically filed with or furnished to the Securities and Exchange Commission. We also make available through our web site other reports electronically filed with the SEC under the Securities Exchange Act of 1934, including our proxy statements and reports filed by officers and directors under Section 16(a) of that Act. Additionally, we make available press releases and presentation material including slides and other investor information. We do not intend for information contained in our web site to be part of this Annual Report on Form 10-K.

ITEM 1A.    RISK FACTORS

        In addition to risk and uncertainties in the ordinary course of business that are common to all businesses, important factors that are specific to our industry and our company could materially impact our future performance and results. We have provided below a list of these risk factors that should be reviewed when considering our business and securities. These are not all the risks we face, and other factors currently considered immaterial or unknown to us may impact our future operations.

Business Risks

        Our financial condition continued to deteriorate during 2009.    We have been evaluating several alternatives related to our strategic positioning, including the potential sale of Buckeye which is not strategic to the further development of our GreenCert or K-Fuel technologies. While we have investigated a number of financing alternatives, we have not yet obtained sufficient additional financing to complete our strategic positioning. In October 2009 we completed a financing deal totaling $7.0 million resulting in net proceeds of $5.0 million, excluding transaction costs, and again completed a financing deal in January 2010 totaling $8.7 million resulting in net proceeds of $8.0 million. We completed another financing transaction in March 2010 totaling $9.3 million and resulting in net proceeds of $5.0 million, excluding transaction costs. Further, in March 2010, we entered a definitive agreement regarding the sale of Buckeye, as described further below. Notwithstanding these financings and the contemplated sale of Buckeye; we continue to require additional capital.

         As a result of the preceding,we are in need of capital. We are continuing to evaluate restructuring and capital raising alternatives—and to work towards the closing of the Buckeye assets. Without an additional influx of capital, we will not be able to pursue our business plan and may not be able to remain a going concern.

The contemplated sale of the Buckeye may not be consummated.

        On March 12, 2010, we signed a definitive agreement with Rosebud Mining Company for the sale of Buckeye for $27.9 million, in addition to the release of $5.0 million of cash reclamation bonds. Further, $2.8 million of the purchase price will be deposited into escrow for a period of twelve months to cover amounts payable to Rosebud pursuant to the indemnification provision of the sales agreement. The closing is not subject to a financing condition, but is subject to the satisfaction of customary closing conditions, including, among other matters, (i) accuracy of the representations and warranties and compliance with the covenants set forth in the agreement, each in all material respects, (ii) receipt of legally required regulatory approvals, and (iii) consents of certain governmental authorities and certain of Buckeye's specified contractual counterparties. The sale is expected to close in April 2010, but in any

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event no later than June 30, 2010. The proceeds from the sale of Buckeye will be used to retire the outstanding 2009 Notes including fees and accrued interest of $21.1 million, to fund related transaction expenses estimated at $2.5 million and for general working capital purposes.

        If this transaction is not closed, we will need to reevaluate our strategy with respect to the Buckeye assets and identify another source of capital to retire the 2009 Notes. A failure to complete the sale of Buckeye could require us to immediately raise capital to pursue our business plan and remain a going concern.

         We have a history of losses, deficits, and negative operating cash flows and will likely continue to incur losses in the future. Such losses may impair our ability to pursue our business plan and our independent registered public accounting firm has expressed substantial doubt over our ability to continue as a going concern.

        We continue to incur operating losses and negative cash flows from operations for the foreseeable future. We have made, and will continue to make, substantial capital and other expenditures before we will have sufficient operating income and cash flow to recover all of our investments. We are not able to accurately estimate when, if ever, our cash flows from operating activities will increase sufficiently to cover these investments. Further, we may not achieve or maintain profitability or generate cash from operations in future periods. Our working capital (the amount by which our current assets exceed our current liabilities), accumulated deficit, net loss and cash (used in) provided by operating activities are as follows:

         We have substantial capital requirements and as a result, we have been, and continue to be, dependent on financing activities or sales of our equity securities to fund our operating costs. The inability to raise funds through traditional financing means or sale of our equity securities may require us to sell assets to fund our operating costs.

        As a result of negative cash flows from operations, we have been, and continue to be, dependent on financing activities and sales of our equity securities to fund the operating and substantial capital costs associated with our business. Our success is dependent on our ability to utilize existing resources and to generate sufficient cash flows to meet our obligations on a timely basis, to obtain financing or refinancing as may be required, to attain profitability, or a combination thereof. The continued economic downturn has had, and may continue to have, an impact on our business and our financial condition. In addition, the economic downturn may present significant challenges for us if conditions in the financial markets do not improve or continue to worsen. We have limited ability to access traditional bank loan financing in current market conditions. Further, our ability to access capital markets, for example, may be severely restricted at times when we need adequate funding to pay our existing indebtedness, pursue our business strategy, respond to changing business and economic conditions and competitive pressures, absorb negative operating results and fund our continuing operations, capital expenditures or increased working capital requirements. We may also need to sell assets to fund our operating costs to the extent that we are unable to raise adequate funds in the capital markets. Given the global recession, we may not be able to sell assets on favorable terms or at all.

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         We have a limited operating history as a technology solutions company, and our business and prospects should be considered in light of the risks and difficulties typically encountered by a company with a limited operating history.

        You should consider our business and prospects in light of the risks and difficulties typically encountered by a company with a limited operating history. The specific risks include whether we will be able to:

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enter into agreements to measure, quantify certify and verify carbon dioxide emissions or to license our GreenCert technology;



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enter into or maintain strategic partnerships with vendors and other parties to maximize our K-Fuel and GreenCert technologies;



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raise additional capital;



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execute our business strategy;



•

accurately assess potential markets and effectively respond to competitive developments;



•

successfully market our products;



•

attract and retain customers for product sales;



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attract and retain credit-worthy customers;



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effectively manage expanding operations;



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attract and retain key personnel; and



•

enter into agreements for the purpose of building K-Direct and K-Fuel plants or licensing of that technology;

        We may not be successful in addressing these and other risks. As a result, our financial condition, results of operations and cash flows may be adversely affected.

         Competition from other companies that have developed or may develop other systems that measure greenhouse gases and certify carbon credits, could adversely affect our competitive position. Further, competition could increase depending upon the level of regulation ultimately enacted in the United States and international markets, which could further adversely affect our competitive position.

        While we believe we have developed the only science-based method to accurately measure greenhouses gas emissions, other companies have developed less costly methodologies to measure these emissions. In addition, a number of companies are developing carbon measurement alternatives and many of these companies have greater resources than ours. Carbon measurement regulation, in both the United States and internationally, is evolving and there is no clear consensus on how carbon emissions should be measured. While we believe that our measurement tool is the most accurate tool because it is scientifically based, regulations could be enacted allowing for less precise methods and therefore, less costly methodologies to be applied. Further, there is a risk that our GreenCert technology will not be accepted by regulators and customers even though we believe it is compliant. Future revenues will be dependent upon our ability to identify and adapt to our competition and the changing regulatory environment.

         We rely on key personnel and if we are unable to retain or attract qualified personnel, we may not be able to execute our business plan.

        Our success is currently dependent on the performance of a small group of senior managers, key technical personnel and independent contractors that have a wide range of technical experience and

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expertise. For K-Fuel, this experience and expertise includes coal refining, coal thermal upgrading, thermal processing, coal gasification, coal liquification and general plant operations, For GreenCert this expertise includes carbon measurement, carbon emission modeling, power generation, carbon sequestration and nitrogen oxides and sulfur dioxide reduction analysis. In addition, our business strategy will require us to attract and retain a substantially greater number of qualified personnel and/or hire additional contractors in these key areas. The inability to retain key managerial and technical personnel or attract and retain additional highly qualified managerial or technical personnel in the future could harm our business or financial condition.

         Competition from other companies in the clean coal, alternative fuel and emission-reducing equipment industries, including competition resulting from deregulation in the United States power industry, could adversely affect our competitive position.

        Competition in the clean coal, alternative fuel and emission-reducing equipment industries could impact our ability to generate revenue from our K-Fuel process. Many of these companies in the clean coal, alternative fuel technology and emission-reducing equipment industries have financial resources greater than ours. Providers of alternative or competing technologies in these industries may be subject to less regulation, or alternatively, may enjoy subsidies that provide them with increased financial strength, or make their products or services more attractive to energy consumers. Due to any of these competitive advantages, our existing and future competitors may be able to offer products more competitively priced and more widely available than ours. These companies also may have the resources to create new technologies and products that could make our process and products obsolete. Our future revenues may depend on our ability to address competition in these industries. In addition, deregulation in the United States power generating industry may result in increased competition from other producers of energy-efficient coal products, other clean fuel sources, and other products, services and technologies designed to provide environmental and operating cost benefits similar to those which we believe are available from our K-Fuel refined coal.

         Overseas development of our K-Fuel and GreenCert businesses is subject to international risks, which could adversely affect our ability to license, construct overseas plants or profitably operate our businesses overseas.

        We believe a portion of the growth opportunity for our businesses lies outside the United States. Doing business in foreign countries may expose us to many risks that are not present domestically. We lack significant experience dealing with such risks, including political, military, privatization, technology piracy, currency exchange and repatriation risks, and higher credit risks associated with customers. In addition, it may be more difficult for us to enforce legal obligations in foreign countries, and we may be at a disadvantage in any legal proceeding within the local jurisdiction. Local laws may also limit our ability to hold a majority interest in the projects that we develop.

         If the national and world-wide financial downturn continues or intensifies it could adversely impact demand for our technology and products.

        Continued market disruptions could cause broader economic downturns, which may lead to lower demand for our technology or products, increased incidence of customers' inability to pay their accounts, or insolvency of our customers, any of which could adversely affect our results of operations, liquidity, cash flows, and financial condition.

         Our inability to adequately protect and defend our proprietary K-Fuel and GreenCert processes could harm our business, increase our costs and decrease sales of our products and services.

        Our success depends, in part, upon our proprietary processes. We rely on a combination of patent, trademark and trade secret rights to establish and protect our proprietary rights. We currently have a

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series of patents and patent applications on our K-Fuel process and our GreenCert technology. However, competitors may successfully challenge the validity or scope of one or more of our patents, or any future patents. These patents alone may not provide us with any significant competitive advantage. Further, while our most recently issued K-Fuel patent protection covers what we believe are the unique aspects of our K-Fuel process as it is currently conducted, not all of the claims we filed were allowed. An additional patent application has been filed to address the examiner's comments and we expect some of the revised claims to be allowed. While we continue our efforts regarding these claims there can be no assurance that we will be able to obtain patent protection in the United States or abroad to protect these or any other aspects of our intellectual property, or that, in the absence of any such patent protection, that the combination of additional methods that we currently employ to maintain the confidentiality of our processes will adequately safeguard our proprietary processes and information. If our intellectual property is not adequately protected, this may have a material adverse impact on our financial condition, results of operations, cash flows and future prospects.

        Third parties could copy or otherwise obtain and use our technologies without authorization or develop similar technologies independently. The protection of our proprietary rights may be inadequate and our competitors could independently develop similar technology, duplicate our solutions, or design around any patents or other intellectual property rights we hold.

        Any actions taken by us to enforce our patents or other property rights could result in significant expense as well as the diversion of management time and resources. In addition, detecting infringement and misappropriation of patents or intellectual property can be difficult, and there can be no assurance that we would detect any infringement or misappropriation of our proprietary rights. Even if we are able to detect infringement or misappropriation of our proprietary rights, litigation to enforce our rights could cause us to divert significant financial and human resources from our business operations, and may not ultimately be successful. If we are required to divert significant resources and time to the enforcement of our proprietary rights, even if the enforcement is successful, our business could be materially adversely affected.

         Our success will depend on our ability to operate without infringing on or misappropriating the proprietary rights of others.

        We may be sued for infringing or misappropriating the proprietary rights of others. Intellectual property litigation is costly, and, even if we prevail, the cost of such litigation could adversely affect our business. In addition, litigation is time consuming and could divert management attention and resources away from our business. If we do not prevail in any litigation, we could be required to stop the infringing activity and/or pay substantial damages. Under some circumstances, these damages could be triple the actual damages the patent holder incurs. If we have supplied infringing products to third parties for marketing or licensed third parties to manufacture, use or market infringing products, we may be obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or damages paid to the patent holder.

        If a third party holding rights under a patent successfully asserts an infringement claim with respect to any of our products or processes, we may be prevented from manufacturing or marketing our infringing product in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder. Any required license might not be available to us on acceptable terms, or at all. Some licenses may be non-exclusive, and therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around a patent, we may be unable to market future products, which could have a material adverse effect on our business.

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         Our acquisition activities may not be successful.

        As part of our business strategy, we may make acquisitions of businesses and technologies. However, suitable acquisition candidates may not be available on terms and conditions we find acceptable. Further, acquisitions pose substantial risks to our financial condition, results of operations and cash flows. In pursuing acquisitions, we compete with other companies, many of which have greater financial and other resources to acquire attractive companies and properties. Even if future acquisitions are completed, the following are some of the risks associated with acquisitions:

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the acquired businesses or properties may not produce revenues, earnings or cash flow at anticipated levels;



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we may be unable to integrate acquired businesses successfully and realize anticipated economic, operational and other benefits in a timely manner;



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acquisitions could disrupt our ongoing business, distract management, divert resources and make it difficult to maintain our current business standards, controls and procedures;



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we may finance future acquisitions by issuing common stock for some or all of the purchase price, which could dilute the ownership interests of our stockholders; and



•

we may incur additional debt related to future acquisitions.

Risks Relating to Our Debt, Our Common Stock and Other Risks.

         Our debt obligations may affect our business, operating results and financial condition.

        We have a significant amount of debt, especially given our limited cash flow from operations. In July 2007, we issued $95.0 million long-term debt due August 1, 2012, ("2007 Notes"), of which $27.4 million is outstanding as of December 31, 2009. In March 2009, we executed a senior secured convertible note agreement which provides for the issuance of up to $15 million in aggregate principal amount of 10% Senior Secured Promissory Notes, which we refer to as the "2009 Notes" in three $5 million tranches. All three tranches were drawn during the year ended December 31, 2009. Further, on December 18, 2009, we restructured and extended the terms of these 2009 Notes extending the maturity date to the earlier of June 30, 2010 or upon the sale of Buckeye. As part of the restructuring, the stated principal amount has been increased by $2.25 million, representing the 15% exit fee, bringing the aggregate principal amount of 2009 Notes to $17.25 million. In addition, we must pay a 15% exit fee upon the payment of the principal amount equaling $2.6 million. See further discussion in Item 8—Note 7—Debt.

        Our debt service obligations could adversely affect us in a number of ways, including by:

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limiting our ability to obtain in the future, if needed, financing for working capital, capital expenditures, debt service requirements or other corporate purposes;



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limiting our flexibility in implementing our business strategy and in planning for, or reacting to, changes in our business;



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placing us at a competitive disadvantage relative to any of our competitors who have lower levels of debt;



•

decreasing our debt ratings and increasing our cost of borrowed funds;



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making us more vulnerable to a downturn in our business or the economy generally;



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subjecting us to the risk of being forced to refinance at higher interest rates these amounts when due; and

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requiring us to use a substantial portion of our cash to pay principal and interest on our debt instead of contributing those funds to other purposes such as working capital, capital expenditures or other corporate purposes.

        In addition, our ability to generate cash flow from operations sufficient to make scheduled payments on our debts as they become due will depend on our future performance, our ability to successfully implement our business strategy and our ability to obtain other financing, which may be influenced by economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

         Our ability to pay principal and interest on outstanding indebtedness depends upon our receipt of dividends or other intercompany transfers from our subsidiaries, and claims of creditors of our subsidiaries that do not guarantee our indebtedness will have priority over claims you may have as for our guaranteed indebtedness with respect to the assets and earnings of those subsidiaries.

        We are a holding company and substantially all of our properties and assets are owned by, and all our operations are conducted through, our subsidiaries. As a result, we are dependent upon cash dividends and distributions or other transfers from our subsidiaries to meet our debt service obligations, including payment of the interest on and principal of our indebtedness when due, and other obligations. The ability of our subsidiaries to pay dividends and make other payments to us may be restricted by, among other things, applicable corporate, tax and other laws and regulations in the United States and abroad and agreements made by us and our subsidiaries, including under the terms of our existing and potentially future indebtedness. In addition, claims of creditors, including trade creditors, of our subsidiaries will generally have priority with respect to the assets and earnings of such subsidiaries over the claims of our creditors, except to the extent the claims of our creditors are guaranteed by these subsidiaries. In the event of our dissolution, bankruptcy, liquidation or reorganization, the holders of such indebtedness will not receive any amounts from our non-guarantor subsidiaries with respect to such indebtedness until after the payment in full of the claims of the creditors of those subsidiaries. Furthermore, if there was default on the 2009 Notes, Buckeye would not be permitted to make cash dividends, dividends or other transfers.

         We may not have the ability to repurchase the 2007 Notes for cash upon the occurrence of a fundamental change as required by the Indenture governing the 2007 Notes or to make payments upon major transactions as required by the 2009 Notes.

        Holders of our 2007 Notes will have the right to require us to repurchase the 2007 Notes for cash upon the occurrence of a fundamental change, which would include, among other things, the failure of our common stock to be listed on the NYSE Arca or another national securities exchange or quoted on an established automated over-the-counter trading market. In addition, the 2009 Notes require that, upon the holder's request, we pay all amounts outstanding with certain exit fees upon a major transaction, which generally includes transactions such as mergers, business combinations, sales of secured assets and other change of control transactions. We may not have sufficient funds to repurchase the 2007 Notes or repay the 2009 Notes or have the ability to arrange necessary financing on acceptable terms. Our ability to repurchase the 2007 Notes for cash may be limited by law or the terms of other agreements relating to our indebtedness outstanding at the time. Our failure to repurchase the 2007 Notes or repay the 2009 Notes when required would result in an event of default with respect to the Notes and could result in the acceleration of the maturity of our then-existing indebtedness. This repurchase right may actually have the effect of making us a less attractive candidate for a fundamental change transaction.

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         Conversion of the Notes may dilute the ownership interest of existing stockholders, including holders who have previously converted their Notes.

        To the extent we deliver common stock upon conversion of either the 2007 Notes or the 2009 Notes, the ownership interests of existing stockholders may be diluted. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.

         We may not be able to refinance the Notes if required or if we so desire.

        We may need or desire to refinance all or a portion of the Notes or any other future indebtedness that we incur on or before the maturity of the Notes. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms, if at all.

         We may be unable to deduct for tax purposes the interest or original issue discount, if any, paid or accrued on the Notes.

        No deduction is allowed for U.S. federal income tax purposes for interest paid on a disqualified debt instrument. A disqualified debt instrument generally includes any indebtedness of a corporation which is payable in equity of the issuer. Although we believe and intend to take the position that the Notes are not disqualified debt instruments, the Notes may be treated as disqualified debt instruments, and we may be prohibited from deducting the interest due on the Notes. Consequently, we may have less cash available with which to satisfy our obligations.

         Our common stock could be delisted from the NYSE Arca if we do not comply with its continued listing standards.

        On October 2, 2009, we were notified by NYSE Arca, Inc. ("NYSE Arca") that we are not in compliance with NYSE Arca's continued listing standard under Rule 5.5(b)(2) of the NYSE Arca Equities Rules. The standard requires that a listed common stock must maintain an average closing price in excess of $1.00 over a consecutive 30 trading-day period. We have six months from the receipt of the notice to regain compliance with the NYSE Arca price condition, or we may be subject to suspension and delisting procedures. Subject to NYSE Arca rules, during the six-month cure period, our common stock will continue to be listed, and trade on NYSE Arca. At the end of the six-month period, we will be in compliance if we have at least a $1.00 share price and have maintained a $1.00 average closing share price over the preceding 30 consecutive trading days. We are currently exploring alternatives for curing the deficiency and restoring compliance with NYSE Arca's continued listing standard. However, if our stock is delisted, it could reduce the liquidity of an investment in our common stock and also make it more difficult for us to raise capital in the future. In addition, efforts to maintain our listing on the NYSE Arca may result in the incurrence of costs that could be material in any given period.

         Our stock price has been volatile historically and may continue to be volatile. The price of our common stock may fluctuate significantly, which may make it difficult for holders to resell the shares of our common stock issuable upon conversion of the preferred stock or upon exercise of the warrants when desired or at attractive prices.

        The trading price of our common stock has been and may continue to be subject to wide fluctuations. Our stock price may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, changes in financial estimates and recommendations by securities analysts,

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the operating and stock price performance of other companies that investors may deem comparable to us, and new reports relating to trends in our markets or general economic conditions.

        In addition, the stock market in general, and prices for companies in our industry in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance. Because the preferred stock is convertible into shares of our common stock, volatility or depressed prices of our common stock could affect the value of the preferred stock or the warrants. Additionally, lack of positive performance in our stock price may adversely affect our ability to retain key employees.

         Sales of a significant number of shares of our common stock in the public markets, or the perception of such sales, could depress the market price of the Notes, our common stock, or both.

        Sales of a substantial number of shares of our common stock or other equity-related securities in the public markets could depress the market price of the Notes, our common stock, or both, and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our common stock or the value of the Notes. The price of our common stock could be affected by possible sales of our common stock by investors who view the Notes as a more attractive means of equity participation in our company and by hedging or arbitrage trading activity which we expect to occur involving our common stock. This hedging or arbitrage could, in turn, affect the market price of the Notes.

         Our stock price continues to be volatile, and any investment in our common stock could suffer a decline in value.

        An investment in our common stock is risky, and stockholders could suffer significant losses and wide fluctuations in the market value of their investment. The market price of our common stock has been extremely volatile. During 2009, the sale prices of our common stock on the NYSE Arca ranged from a low of $0.28 to a high of $1.43. We expect our common stock to continue to be subject to fluctuations. Broad market and industry factors may adversely affect the market price of our common stock, regardless of our actual operating performance. Volatility in the market price of shares may prevent investors from being able to sell their shares of common stock at prices they view as attractive. In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management's attention and resources.

         We have adopted anti-takeover defenses that could make it difficult for another company to acquire control of us or limit the price investors might be willing to pay for our stock, which could adversely affect the performance of our stock.

        We have adopted a stockholder rights plan, commonly known as a "poison pill," under which each stockholder holds one share purchase right, which we refer to as a Right, for each share of common stock held. The Rights become exercisable upon the occurrence of certain events and may make our acquisition more difficult and expensive. In addition our certificate of incorporation, and Delaware General Corporation Law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. The stockholder rights plan, provisions of our certificate of incorporation, and Delaware law are intended to encourage potential acquirers to negotiate with us and allow our board of directors the opportunity to consider alternative proposals in the interest of maximizing stockholder value. However, such provisions may also discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price.

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         The anti-dilution provisions of the 2009 Notes could have a substantial dilutive effect on our common stock and put downward pressure on the market price of our common stock.

        The conversion price of our 2009 Notes is subject to downward anti-dilution adjustments if we issue securities at a purchase, exercise or conversion price that is less than the then-applicable conversion price of the 2009 Notes. Consequently, the voting power of our common stock and the market value of our common stock in such an event would decline if the 2009 Notes are converted for shares of our common stock at the new lower conversion price.

         We have not paid cash dividends on our common stock and do not anticipate paying any dividends on our common stock in the foreseeable future.

        We anticipate that we will retain all future earnings and other cash resources for the future operation and development of our business. Accordingly, we do not intend to declare or pay any cash dividends on our common stock in the foreseeable future. Payment of any future dividends will be at the discretion of our board of directors after taking into account many factors, including our operating results, financial conditions, current and anticipated cash needs and plans for expansion.

         The 2009 Notes contain restrictive covenants that limit our operational flexibility.

        The 2009 Notes contain covenants that, among other things, restrict our ability to take specific actions, even if we believe them to be in our best interest. These covenants include restrictions on:

•

Buckeye incurring additional debt;



•

upon a default, receiving dividends from Buckeye or allowing us to pay dividends on or make distributions in respect of our capital stock;



•

creating liens on certain assets to secure debt; and



•

selling certain assets.

        Our failure to comply with these restrictions could lead to a default under the 2009 Notes.

GreenCert Technology Risks

         We do not know if our GreenCert technology is commercially viable. Further, due to the uncertain market for, and commercial acceptance of our GreenCert technology, we may not be able to realize significant revenues from this technology.

        Our GreenCert technology is in an evolving market and as a result we do not know whether our GreenCert technology will be accepted by customers to measure greenhouse gas emissions and certify carbon credits in a cost effective manner. While we believe that a commercial market is developing both domestically and internationally for measuring greenhouse gasses and certifying carbon credits, we may face the following risks due to the developing market for our technology:

•

limited pricing information;



•

alternative methodologies are available at a lower price; and



•

sufficient market interest for us to continue in business.

        If we are unable to develop markets for our GreenCert technology, our ability to generate revenues and profits may be negatively impacted.

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         Future changes in the law may adversely affect our ability to sell products and services based on our GreenCert Technology.

        A significant factor in expanding the potential market for the measurement and reporting of greenhouse gases and certification of carbon credits is the continuation and expansion of emissions regulations both in the U.S. and internationally. We are unable to predict future regulatory changes and their impact on the demand for our products. While more stringent laws and regulations may increase demand for our products, such regulations may result in reduced reliance on various sources of emissions, including coal fired power plants, or increased reliance on alternative energy sources, which do not result in the emission of greenhouse gases. Similarly, amendments to the numerous federal and state environmental regulations that relax emission limitations would have a material adverse effect on our prospects.

         Our success depends upon our ability to develop and enhance our products and services.

        Rapid technological advances and evolving standards in computer hardware, software development and communications infrastructure, changing and increasingly sophisticated customer needs and frequent new product introductions and enhancements characterize the market in which we compete. If we are unable to continue to develop our products and services in a timely manner or to position and/or price our products and services to meet market demand, customers may not buy licenses or renew licenses. In addition, IT standards from both consortia and formal standards-setting forums as well as de facto marketplace standards are rapidly evolving. We cannot provide any assurance that the standards on which we choose to develop our products will allow us to compete effectively for business opportunities this emerging area.

         We may need to change our pricing models to compete successfully.

        The intense competition we face in the sales of our products and services and general economic and business conditions can put pressure on us to change our prices. If our competitors offer discounts on certain products or services or develop products that the marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect operating results. Our license renewals are anticipated to be priced as a percentage of our net new license fees. Our competitors may offer lower percentage pricing on renewals, which could put pressure on us to further discount our new license prices.

         As we release our solution, we might experience significant errors or security flaws in our products and services.

        Despite testing prior to their release, products frequently contain errors or security flaws, especially when first introduced or when new versions are released. The detection and correction of any security flaws can be time consuming and costly. Errors in software products that underlie our solution could affect the ability of our products to work with other hardware or software products, could delay the development or release of new products or new versions of our products and could adversely affect market acceptance of our products. If we experience errors or delays in releasing new products or new versions of our products, we could lose revenues. End users, who rely on our products and services for applications that are critical to their businesses, may have a greater sensitivity to product errors and security vulnerabilities than customers for software products generally. Product errors and security flaws in our products or services could expose us to product liability, performance and/or warranty claims as well as harm our reputation, which could impact our future sales of products and services. In addition, we may be legally required to publicly report security breaches of our services, which could adversely impact future business prospects for those services.

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K-Fuel Process Risks

         We faced technical and operational issues at our Fort Union plant prior to suspending operations at the plant. These technical and operational problems may adversely impact our ability to develop future K-Fuel or K-Direct facilities, resulting in delays in achieving full scale commercial production of our K-Fuel refined coal.

        Research and development is an iterative process and our K-Fuel process has been evolving for approximately 25 years with the most recent material modification being the integration of the Lurgi (Pty) Ltd. proprietary coal processing equipment with our patented technology, which started in 2003.

        Our Fort Union plant was a third generation facility developed for this purpose. The first facility was a research and development plant that currently serves as our research laboratory. The second facility was a commercial demonstration plant that we constructed with a joint venture partner and commenced operations in 1998. In June 1999, our joint venture partner suspended production at the plant due to its strategic restructuring. Thereafter, we sold our interest in the plant to our joint venture partner and in September 2002, the major equipment at the plant was purchased by a third party and removed from the site. As part of the continued development of the K-Fuel process, we analyzed the operations of this plant and some of the problems that we encountered with respect to operations and product quality and made modifications to the K-Fuel process that we believe addressed these issues. We built upon this knowledge base in designing and constructing the Fort Union plant.

        While redesigned equipment and systems tested at the Fort Union plant showed positive results, we faced technical and operational problems in attempting to achieve commercial production of K-Fuel and decided to suspend operations at the plant in March 2008. Our goal was to dedicate our limited capital and human resources to building new plants built around the enhanced design and systems tested at the Fort Union plant. Problems we encountered included cost overruns, delays, technical issues, availability of workers and contractors, and weather. We may encounter similar problems at any future facilities we are able to build. Additionally, any future facilities may encounter the following additional problems:

•

unforeseen construction problems and limited availability of raw material or fabrication capability;



•

unforeseen problems not previously encountered at our Fort Union plant; and



•

current and future K-Fuel products may not meet the technical specifications required by our customers or other customer requirements.

        Our ability to effectively operate and develop K-Fuel and K-Direct facilities may be harmed to the extent these and other technical or operational problems materialize. Should we be unable to effectively develop K-Fuel or K-Direct facilities, our ability to generate revenues and profits from future facilities and future licensing opportunities may be negatively impacted. In particular, because we were unable to consistently operate our Fort Union plant for sustained periods of time to produce commercial quantities of K-Fuel refined coal, it will likely be more difficult for us to enter into arrangements with customers for their regular purchase of K-Fuel refined coal at future facilities.

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         We do not know if K-Fuel refined coal is commercially viable.

        While our Fort Union plant previously produced limited amounts of K-Fuel refined coal, we do not know whether K-Fuel refined coal can be produced and sold on a commercial basis in a cost effective manner after taking into account the cost of the feedstock, our production costs and the cost of transportation. As our Fort Union plant was not able to achieve full scale commercial production, we have not yet developed an efficient cost structure. We are currently using the knowledge base developed at our Fort Union plant to understand our pricing and costs, as well as the quality of the product when used in K-Fuel test burns, and intend to leverage this knowledge base when constructing any additional K-Fuel plants or any K-Direct plants. We experienced technical problems with respect to the K-Fuel refined coal produced at our Fort Union plant, including coal dusting. If we fail to adequately address these technical problems to the extent they occur at future K-Fuel or K-Direct facilities, or any other unforeseen problems that may occur in the future, it could make K-Fuel refined coal more expensive to transport and store, and therefore more expensive to burn. Failure to address both known and unforeseen technical challenges of K-Fuel refined coal, obtain feedstock in sufficient quantity and at acceptable prices and to arrange for transportation services at reasonable prices, may materially and adversely affect our business, results of operations and financial condition.

         Construction of future K-Fuel or K-Direct facilities will require substantial lead time and significant additional financing if constructed by us or Evergreen-China.

        We do not currently have any definitive contracts to construct additional K-Fuel facilities or K-Direct facilities. To the extent that we identify businesses to construct K-Fuel or K-Direct facilities, a lengthy permitting and construction process may commence. We estimate that it could take six months or longer to obtain necessary permits and approvals and that, depending on local circumstances, the required time could be much longer or shorter. Thereafter, construction of a facility with a capacity of approximately 1.5 million tons of K-Fuel refined coal per year could take an estimated further period of 18 to 24 months.

        Prior to suspending operations at our Fort Union plant in March 2008, we estimate that we spent approximately $110 million in constructing our Fort Union plant. We estimate that the cost of constructing additional facilities, such as a 1.5 million ton per year facility, could be greater depending on additional variables, including site location, material handling equipment and design, seismic zones, labor issues, and weather and climate conditions. Such variables could potentially increase costs. We would be required to obtain substantial amounts of financing to undertake any such project and there can be no assurance that such financing would be available to us. Inability to construct additional facilities to produce K-Fuel, or to finance the construction thereof on acceptable terms, will adversely affect our financial condition.

         Any negative results from the continuing evaluation of K-Fuel refined coal produced at future facility sites by us or third parties could have a material adverse effect on the marketability of K-Fuel refined coal and future prospects.

        We and certain third parties are continuing to evaluate the attributes of K-Fuel refined coal. There can be no assurance that these evaluations will result in positive findings concerning the moisture content, heat value, emission-levels, burn qualities or other aspects of our K-Fuel refined coal. Furthermore, even if current evaluations indicate that our K-Fuel refined coal performs to design specifications, there can be no assurance that later tests will confirm these current results or that our K-Fuel refined coal will be readily accepted by the market. The process of introducing our K-Fuel refined coal into the market may be further delayed if these test results are negative or if potential customers conduct their own tests of the K-Fuel refined coal to determine whether it meets their individual requirements and the results are not acceptable. Substantially all of our evaluations of K-Fuel refined coal at our Fort Union plant used Powder River Basin low-grade coal as the feedstock and we

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conducted only limited tests of the K-Fuel process at Fort Union using other feedstocks. However, we have conducted numerous tests of the K-Fuel process using other feedstocks in laboratories. The ability to use feedstocks from other locations in the United States or overseas will depend on the results of future tests on different types of coal. If these tests limit the range of viable low-grade coal feedstocks for use in the K-Fuel process, site locations for future K-Fuel or K-Direct plants may be limited and the commercial appeal of the process may be less than anticipated. If this continuing process of evaluation and market introduction results in negative findings concerning the K-Fuel process, this could have a material adverse effect on the marketability of K-Fuel refined coal and on our financial condition, results of operations and future prospects.

         Due to the uncertain market for, and commercial acceptance of, our K-Fuel refined coal, we may not be able to realize significant revenues from the sale of K-Fuel refined coal or licensing our technology.

        While we believe that a commercial market is developing both domestically and internationally for cleaner coal products such as K-Fuel refined coal, we may face the following risks due to the developing market for our cleaner coal technology:

•

limited pricing information;



•

changes in the price differential between low- and high-Btu coal;



•

unknown costs and methods of transportation to bring K-Fuel refined coal to market;



•

alternative fuel supplies available at a lower price;



•

the cost and availability of emissions-reducing equipment and other technologies that may be more desirable than the K-Fuel refined coal;



•

potential future declines in energy prices which would make K-Fuel refined coal less attractive economically;



•

the market viability of K-Fuel refined coal based on a decline in energy prices; and



•

sufficient market interest for us to continue in business.

        If we are unable to develop markets for our K-Fuel technology, our ability to generate revenues and profits may be negatively impacted.

         If we are unable to license and commercialize K-Fuel production plants, our ability to generate profits from this process will be impaired.

        Our future success will be adversely affected if we can not locate, develop, construct, and/or license future commercial K-Fuel production plants and have them operate at a profit. Prior to suspending operations at our Fort Union plant, we were not able to achieve commercial production. A number of different variables, risks and uncertainties affect our successful construction of future K-Fuel production plants and our ability to operate such plants at a profit including:

•

the complex, lengthy and costly regulatory permit and approval process;



•

local opposition to development of projects, which can increase cost and delay timelines;



•

increases in construction costs such as for contractors, workers and raw materials;



•

transportation costs and availability of transportation;



•

our inability to acquire adequate amounts of low rank feedstock coal at forecasted prices to meet our projected goals;



•

engineering, operational and technical difficulties, as discussed above;

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•

possible price fluctuations of low-Btu coal, which could impact K-Fuel refined coal's profitability; and



•

expenditures related to researching and investigating future K-Fuel production sites, which we may not be able to recover.

        If we are unable to successfully address these risks, our results from operations, financial condition and cash flows may be adversely affected.

         Regulation of the K-Fuel process and K-Fuel refined coal may adversely affect our financial condition and results of operations and cash flows.

        Our K-Fuel refined coal is currently subject to federal, state, local, and foreign laws and regulations. In addition, as products and commercial applications are introduced into the market, governments may impose new regulations which may increase our costs and price of our product. If the cost of compliance with applicable laws and regulations increases past that forecasted, our ability to profitably market and sell K-Fuel refined coal may be jeopardized.

         Compliance with environmental laws and regulations may increase our costs and reduce our future sales.

        Our operations are subject to stringent and complex federal, state and local environmental laws and regulations. Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations. Certain environmental statutes impose strict joint and several liabilities for costs required to clean up and restore sites where hazardous substances have been disposed or otherwise released. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of substances or other waste products into the environment.

         Future changes in the law may adversely affect our ability to sell our products and services.

        A significant factor in expanding the potential U.S. market for K-Fuel refined coal is the numerous federal, state and local environmental regulations, which provide various air emission requirements for power generating facilities and industrial coal users. We believe that the use of clean-burning fuel technologies, like K-Fuel refined coal, will help utility companies comply with the air emission regulations and limitations. We are unable to predict future regulatory changes and the impact on the demand for our products. While more stringent laws and regulations, including mercury emission standards, limits on sulfur dioxide emissions and nitrogen oxide emissions, may increase demand for our products, such regulations may result in reduced coal use and increased reliance on alternative fuel sources. Similarly, amendments to the numerous federal and state environmental regulations that relax emission limitations would have a material adverse effect on our prospects.

Coal Mining Risks

Certain conditions and events beyond our control could negatively impact our coal mining operations, our production or our operating costs.

        We mine coal at underground and surface mining operations. Certain factors beyond our control, including those listed below, could disrupt our coal mining operations, reduce our production or increase our operating costs:

•

delays and difficulties in acquiring, maintaining or renewing necessary permits or mining or surface rights;

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•

changes or variations in geological conditions, such as the thickness of the coal deposits and the amount of rock embedded in or overlying the coal deposit;



•

mining and processing equipment failures and unexpected maintenance problems;



•

interruptions due to transportation delays;



•

adverse weather and natural disasters, such as heavy rains or snow and flooding;



•

shortage of qualified labor;



•

unexpected or accidental surface subsidence from underground mining;



•

accidental mine water discharges, fires, explosions or similar mining accidents; and



•

regulatory issues involving the plugging of and mining through oil and gas wells that penetrate the coal seams we mine.

        If any of these conditions or events occur at our Buckeye operations our coal mining operations may be disrupted; we could experience a delay or halt of production or our operating costs could increase significantly. In addition, if our insurance coverage is limited or excludes certain of these conditions or events, then we may not be able to recover any of the losses we may incur as a result of such conditions or events, some of which may be substantial.

         The substantial or extended decline in coal prices has negatively affected our revenues and the value of our coal reserves.

        Revenues from our Buckeye operations and the value of our coal reserves depend upon the prices we receive for our coal. In turn, the prices we receive for our coal depend upon factors beyond our control, including the following:

•

the supply of and demand for domestic and foreign coal;



•

the demand for electricity and steel;



•

domestic and foreign governmental regulations and taxes, including those establishing air emission standards for coal-fueled power plants;



•

regulatory, administrative and judicial decisions, including those affecting future mining permits;



•

the proximity, capacity and cost of transportation facilities;



•

the availability and price of alternative fuels, such as natural gas, and alternative energy sources, such as hydroelectric, wind and solar power;



•

technological developments, including those intended to convert coal to liquid or gas and those aimed at capturing and sequestering carbon; and



•

the effects of worldwide energy conservation measures.

        Decline in the prices we receive for our coal could adversely affect our revenues and the value of our coal reserves.

         Increases in the costs of mining and other industrial supplies, including steel-based supplies and diesel fuel, or the inability to obtain a sufficient quantity of those supplies, could negatively affect our operating costs or disrupt or delay our production.

        Our coal mining operations use significant amounts of steel, diesel fuel, and other mining and industrial supplies. The costs of roof bolts we use in our underground mining operations depend on the price of scrap steel. We also use significant amounts of diesel fuel for the trucks and other heavy

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machinery at our Buckeye operations. If the prices of mining and other industrial supplies, particularly steel-based supplies and diesel fuel increase, our operating costs could be negatively affected. In addition, if we are unable to procure these supplies, our coal mining operations may be disrupted or we could experience a delay or halt in our production.

         Our inability to acquire additional coal reserves or our inability to develop coal reserves in an economically feasible manner may adversely affect our business.

        As we mine, we deplete our coal reserves. As a result, our ability to produce coal in the future depends, in part, on our ability to acquire additional coal reserves. We may not be able to obtain replacement reserves when we require them. If available, replacement reserves may not be available at favorable prices, or we may not be capable of mining those reserves at costs that are comparable with our existing coal reserves. Our ability to obtain coal reserves in the future could also be limited by restrictions under our existing or future debt agreements and competition from other coal producers. If we are unable to acquire coal reserves to replace the coal reserves we mine, our future production may decrease significantly and our operating results may be negatively affected.

         Estimates of proven and probable reserves may vary substantially from actual results.

        There are numerous uncertainties inherent in estimating quantities of proven and probable reserves, including many factors beyond our control. Estimates of economically proven and probable coal reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions. These include historical production from the area compared with production from other producing areas, the assumed effects of regulations by governmental agencies and assumptions concerning future coal prices, future operating costs, severance and excise taxes, development costs and reclamation costs, all of which may in fact vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities of coal attributable to any particular group of properties, classifications of such reserves based on risk of recovery and estimates of future net cash flows expected from them prepared by different engineers or by the same engineers at different times may vary substantially. Actual production, revenues and expenditures with respect to our reserves will likely vary from estimates, and such variances will likely be material. As a result, you should not place undue reliance on the coal reserve data included herein.

         A shortage of skilled labor in the mining industry could pose a risk to achieving optimal labor productivity and competitive costs, which could adversely affect our profitability.

        Efficient coal mining using modern techniques and equipment requires skilled laborers, preferably with at least a year of experience and proficiency in multiple mining tasks. In the event the shortage of experienced labor continues or worsens or we are unable to train the necessary amount of skilled laborers, there could be an adverse impact on our labor productivity and costs and our ability to expand production and therefore have a material adverse effect on our earnings.

         Defects in title or loss of any leasehold interests in our properties could limit our ability to conduct mining operations on these properties or result in significant unanticipated costs.

        We conduct a significant part of our mining operations on properties that we lease. A title defect or the loss of any lease upon expiration of its term, upon a default or otherwise, could adversely affect our ability to mine the associated reserves and/or process the coal that we mine. Title to most of our owned or leased properties and mineral rights is not usually verified until we make a commitment to develop a property, which may not occur until after we have obtained necessary permits and completed exploration of the property. In some cases, we rely on title information or representations and warranties provided by our lessors or grantors. Our right to mine some of our reserves has in the past been, and may again in the future be, adversely affected if defects in title or boundaries exist or if a

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lease expires. Any challenge to our title or leasehold interests could delay the exploration and development of the property and could ultimately result in the loss of some or all of our interest in the property. Mining operations from time to time may rely on an expired lease that we are unable to renew. From time to time we also may be in default with respect to leases for properties on which we have mining operations. In such events, we may have to close down or significantly alter the sequence of such mining operations which may adversely affect our future coal production and future revenues. If we mine on property that we do not own or lease, we could incur liability for such mining. Also, in any such case, the investigation and resolution of title issues would divert management's time from our business and our results of operations could be adversely affected.

        In order to obtain leases or mining contracts to conduct our mining operations on property where these defects exist, we may in the future have to incur unanticipated costs. In addition, we may not be able to successfully negotiate new leases or mining contracts for properties containing additional reserves, or maintain our leasehold interests in properties where we have not commenced mining operations during the term of the lease. Some leases have minimum production requirements. Failure to meet those requirements could result in losses of prepaid royalties and, in some rare cases, could result in a loss of the lease itself.

         The availability and reliability of transportation facilities and fluctuations in transportation costs could affect the demand for our coal or impair our ability to supply coal to our customers.

        We depend upon barge, rail, and truck transportation systems to deliver coal to our customers. Disruptions in transportation services due to weather-related problems, mechanical difficulties, strikes, lockouts, bottlenecks, and other events could impair our ability to supply coal to our customers. As we do not have long-term contracts with transportation providers to ensure consistent and reliable service, decreased performance levels over longer periods of time could cause our customers to look to other sources for their coal needs. In addition, increases in transportation costs, including the price of gasoline and diesel fuel, could make coal a less competitive source of energy when compared to alternative fuels or could make coal produced in one region of the United States less competitive than coal produced in other regions of the United States or abroad. If we experience disruptions in our transportation services or if transportation costs increase significantly and we are unable to find alternative transportation providers, our coal mining operations may be disrupted, we could experience a delay or halt of production or our profitability could decrease significantly.

         Extensive government regulations impose significant costs on our mining operations, and future regulations could increase those costs or limit our ability to produce and sell coal.

        The coal mining industry is subject to increasingly strict regulation by federal, state and local authorities with respect to matters such as:

•

limitations on land use;



•

employee health and safety;



•

mandated benefits for retired coal miners;



•

mine permitting and licensing requirements;



•

reclamation and restoration of mining properties after mining is completed;



•

air quality standards;



•

water pollution;



•

protection of human health, plant life and wildlife;



•

the discharge of materials into the environment;

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•

surface subsidence from underground mining; and



•

the effects of mining on groundwater quality and availability.

        In particular, federal and state statutes require us to restore mine property in accordance with specific standards and an approved reclamation plan and require that we obtain and periodically renew permits for mining operations. If we do not make adequate provisions for all expected reclamation and other costs associated with mine closures, it could harm our future operating results. In addition, state and federal regulations impose strict standards for particulate matter emissions which may restrict our ability to develop new mines or could require us to modify our existing operations and increase our costs of doing business.

        Federal and state safety and health regulation in the coal mining industry may be the most comprehensive and pervasive system for protection of employee safety and health affecting any segment of the U.S. industry. It is costly and time-consuming to comply with these requirements and new regulations; orders may materially adversely affect our mining operations or cost structure, any of which could harm our future results.

        Under federal law, each coal mine operator must secure payment of federal black lung benefits to claimants who are current and former employees and contribute to a trust fund for the payment of benefits and medical expenses to claimants who last worked in the coal industry before July 1973. The trust fund is funded by an excise tax on coal production. If this tax increases, or if we could no longer pass it on to the purchaser of our coal under many of our long-term sales contracts, it could increase our operating costs and harm our results. New regulations that took effect in 2001 could significantly increase our costs related to contesting and paying black lung claims. If new laws or regulations increase the number and award size of claims, it could substantially harm our business.

        The costs, liabilities and requirements associated with these and other regulations may be costly and time-consuming and may delay commencement or continuation of exploration or production operations. Failure to comply with these regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of cleanup and site restoration costs and liens, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits and other enforcement measures that could have the effect of limiting production from our operations. We may also incur costs and liabilities resulting from claims for damages to property or injury to persons arising from our operations. We must compensate employees for work-related injuries. If we do not make adequate provisions for our workers' compensation liabilities, it could harm our future operating results. If we are pursued for these sanctions, costs and liabilities, our mining operations and, as a result, our profitability could be adversely affected.

        The possibility exists that new legislation and/or regulations and orders may be adopted that may materially adversely affect our mining operations, our cost structure and/or our customers' ability to use coal. New legislation or administrative regulations (or new judicial interpretations or administrative enforcement of existing laws and regulations), including proposals related to the protection of the environment that would further regulate and tax the coal industry, may also require us or our customers to change operations significantly or incur increased costs. These regulations, if proposed and enacted in the future, could have a material adverse effect on our financial condition and results of operations.

         We may be unable to obtain and renew permits necessary for our operations, which would reduce our production, cash flow and profitability.

        Mining companies must obtain numerous permits that impose strict regulations on various environmental and safety matters in connection with coal mining. These include permits issued by various federal and state agencies and regulatory bodies. The permitting rules are complex and may

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change over time making our ability to comply with the applicable requirements more difficult or even impossible, thereby precluding continuing or future mining operations. Private individuals and the public have certain rights to comment upon and otherwise engage in the permitting process, including through court intervention. Accordingly, the permits we need may not be issued, maintained or renewed, or may not be issued or renewed in a timely fashion, or may involve requirements that restrict our ability to conduct our mining operations. An inability to conduct our mining operations pursuant to applicable permits would reduce our production, cash flow, and profitability.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

ITEM 2.    PROPERTIES

Headquarters

        We lease 32,727 square feet of office space in Denver, Colorado for our headquarters pursuant to a ten year lease that commenced in April 2007. We believe this space is sufficient for our near-term goals and growth projections.

Fort Union Plant Site

        In May 2004, we purchased Landrica Development Company, ("Landrica"). Through Landrica, we own approximately 1,000 acres of land located in Campbell County, Wyoming (near Gillette, Wyoming), on which our Fort Union plant is located. The land also includes various coal processing equipment, certain industrial buildings, waste injection wells, producing water wells, a coal-mining pit with limited reserves and a railroad spur.

Buckeye

        Buckeye Industrial Mining Co. has been mining bituminous coal from surface and underground mines in northeast Ohio since 1971. Buckeye currently operates five open-pit mines and one underground mine and has more than 400 lease agreements over five counties: Stark, Carroll, Columbiana, Jefferson, and Tuscarawas. All coal from these mines is Northern Appalachian, non-compliant steam coal, and the mines are located within a fifty mile radius in the State of Ohio. Additionally, virtually all of the coal mined from these sites is shipped to our wash facility, located in Kensington, Ohio, which we refer to as the Kensington preparation and blending facility, or Kensington. We operate and manage these surface and underground mines as one mine due to the fact these mines supply a single wash facility and coal from the various mines is blended together at this site to meet customer specifications.

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        The following map details the counties in which Buckeye has mining operations in the State of Ohio.

        The following map details Buckeye's mining operation by counties in the State of Ohio.

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        Currently, 31 sites have been permitted, 0 sites have been permitted but not yet effective and 14 sites are in the permitting process. The permitted sites are either actively being mined, being reclaimed, or in the maintenance stage. Prospect drilling and evaluation on new leases is ongoing. As of December 31, 2009, Buckeye has approximately 80.2 million tons of in-place reserves. In connection with our purchase of Buckeye in 2006, we engaged an independent, third-party engineering firm to calculate in-place and proven and probable reserves, in which they applied Industry Guide 7 when preparing their analysis. In 2008, and again in 2009, we engaged the same independent engineering firm to generate a limited reserve letter for our underground mining operations, again applying Industry Guide 7.

        All rock formations encountered in Buckeye's mining operations are Pennsylvanian age. All strata encompass the Allegheny Group of the Pennsylvanian age with the exception of one which is in the Conemaugh Group. These coal beds are the most common coals mined at the Northern limit of the Allegheny coal field. Minable coal thickness ranges from 19 inches to 50 inches. Contained within these strata are marketable shales, clays, and limestones. These are mined and marketed when possible, but comprise a very small fraction of Buckeye's sales.

        All mines operate at designed capacity relative to the available equipment and capacity at Kensington. The mines are running at designed production, in compliance with all government permit conditions, and concurrently ongoing reclamation. The equipment used at the surface mining operations are typical of the heavy earthmoving, coal loading and coal transportation equipment found in the surface mining industry in Appalachia. Likewise, the underground mining and coal transport equipment is typical of that in underground room-and-pillar mines in the Appalachian coal field. For our underground mining operations, we contract the coal mining to a third party. The third-party contracting company is paid a fee based on tons mined and quality of the mined coal. In addition, various loaders, scrapers and bulldozers are utilized for ground preparation, road maintenance and drainage control at the sites. All equipment is constantly being upgraded to meet mining, operational or safety requirements.

        In 2006, the underground mining operations were expanded by constructing a second portal to include an additional coal seam and increase overall production. The original portal accessed a specific coal seam and the second portal accessed an additional coal seam. In late 2006, the original portal was idled and the mining unit transferred to the second portal to facilitate additional production of that coal seam. There is currently one portal with two mining units in the second coal seam.

        The following table presents our estimated assigned and unassigned recoverable coal reserves at December 31, 2009:

Total Assigned Reserves(1)
(Tons in millions)
December 31, 2009

(1)

All coal is steam, in the ground and non-compliant.

(2)

Reject rate is 18% and not reflected in the table above.

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Total Unassigned Reserves(1)
(Tons in millions)
December 31, 2009

(1)

All coal is steam, in the ground and non-compliant.

(2)

Reject rate is 19% and not reflected in the table above.

        Our Kensington preparation and blending facility was built in 1977 and repair and maintenance is performed as necessary. This facility cleans the coal impurities and sizes coal to meet various customer size and quality requirements. The cleaning process utilizes gravity separation, typical of most such plants in Appalachia. Sizing is accomplished with a sorting process using screens. Refuse from the cleaning operation is landfilled at sites approved by various government regulatory agencies. After cleaning, the coal may also be blended with other coals to meet specific customer requirements; such as heat value or post-combustion characteristics like ash content or mercury, sulfur dioxide, chlorine, nitrogen oxide or other emissions criteria.

        Access to all the mine sites and Kensington are via US, State, Township or County roads. Transportation of raw coal to Kensington is by trucks over public highways. Transportation of the product to customers is by train using a siding of the Norfolk Southern Railroad or by truck over public highways.

        Approximately 99% of all coal properties are leased. Typically, the properties that are mined are leased from the surface land owner, the coal owner or both. It is common for a single open-pit mine to contain multiple leases and many leases are required for underground mines. These lease agreements require Buckeye to pay royalties, on a per ton basis, for coal mined. New leases are being obtained continually. Leases for surface mine properties are typically written with a five-year term and typically allow for an extension of the term, to include the time necessary to mine and reclaim the area, at the time when physical mining activity on the leased area commences. Renewals or term extensions are necessary for areas not affected within the five-year term. Historically, renewals or term extensions have been rarely needed but easily obtained when necessary. Leases for underground coal reserves are typically written with a ten-year term. Similar to surface leases, the underground lease term extends when mining commences on that area to include the time necessary to complete mining. Extension or renewals of underground leases have also been obtained when necessary. According to current production plans, we do not anticipate any issues with lease term length. Buckeye pays a royalty on all mined tonnage and receives no royalty payments. Royalties paid to surface and/or mineral owners were calculated on 871,692, 922,474 and 857,900 tons for the years ended December 31, 2009, 2008 and 2007, respectively.

        The vast majority of Buckeye's reserves have undergone a title review. Buckeye engages a title company to determine the owner of a particular area (both surface and minerals as they are sometimes different owners). The title company's results are then provided to a title attorney who works in the area of the property. The attorney reviews the title documents placed of record and issues a Report of Title reflecting the surface and mineral owners as reflected by the records of the appropriate county.

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        In order to determine if potential sites are economically feasible, it is necessary to conduct drilling on the properties. If it has been determined that the properties are economically feasible, the permitting process is initiated which includes government permits. The permitting application process takes several years before a permit is granted. Not until a property is permitted and bonded can any mining begin.

        When mining on a property is completed, it must be reclaimed to government permit specifications. A five year, post-reclamation maintenance period is required by government regulation prior to final release of the performance security. Buckeye remains liable for any environmental issues until final release. A performance security instrument, typically a performance bond, is required to insure reclamation.

ITEM 3.    LEGAL PROCEEDINGS

        We are not engaged in any material legal proceedings to which we or any of our subsidiaries are a party.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

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PART II

ITEM 5.    MARKET FOR COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Principal Market and Price Range of Common Stock

        Our common stock trades on the NYSE Arca exchange under the market symbol "EEE." The following table sets forth the range of high and low sales prices per share of common stock for the periods indicated.

        As of March 8, 2010, we had approximately 209 holders of record of our common stock. This does not include holdings in street or nominee names. On March 8, 2010 the closing price of our common stock was $0.32 per share.

Comparative Performance Graph

        The following Performance Graph and related information shall not deemed "soliciting material" or be "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporates it by reference.

        The Securities and Exchange Commission requires that we include in this Form 10-K a line-graph presentation comparing cumulative, five-year stockholder returns (assuming reinvestment of dividends) for our common stock with a broad-based market index and either a nationally recognized industry standard or an index of peer companies selected by us. The following graph assumes $100 invested on December 31, 2004 in our common stock, two Peer Groups of companies and the NASDAQ Composite Index. The stock price performance shown on the following graph is not necessarily indicative of future price performance.

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Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2008

        In 2009, we changed our Peer Group to better reflect energy companies and software companies more our size and complexity. Or new peer group is comprised of the following companies; Beacon Power Corp.; Orion Energy Systems; Lime Energy; PowerSecure; ADA-ES; Acorn Energy; Rentech Energy; Guidance Software; Pervasive Software Inc; and QAD Inc. All companies in the new Peer Group are listed on U.S. stock exchanges or the NASDAQ system. Our Peer Group in 2008 was comprised of the following companies: Alliance Resource Partners, LP.; Foundation Coal Holdings, Inc.; Massey Energy Co.; Westmoreland Coal Company; Yanzhou Coal Mining Co., Ltd.; ADA-ES, Inc.; Headwater, Inc.; Rentech, Inc.; Syntroleum Corporation; NGP Ingredients Inc.; and Pacific Ethanol, Inc.

        We are excluded from the Peer Group for purposes of the comparative performance graph.

Dividend Policy

        We have never paid cash dividends and do not anticipate paying dividends in the foreseeable future. We expect that we will retain all available earnings generated by our operations for the development and growth of our business. Payment of any future dividends will be at the discretion of our board of directors after taking into account many factors, including our operating results, financial condition, current and anticipated cash needs and plans for expansion. Historically, we have not repurchased any common stock.

Recent Sales of Unregistered Securities

        During the quarter ended December 31, 2009, we did not have any sales of securities in transactions that were not registered under the Securities Act that have not been reported in a Form 8-K or Form 10-Q.

Issuer Purchasers of Equity Securities

        We did not repurchase any of our shares of common stock during the quarter ended December 31, 2009.

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ITEM 6.    SELECTED FINANCIAL DATA

        The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and related notes thereto in Item 8 of this report and Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of this report. The selected consolidated results of operations and cash flow data for each of the three years in the period ended December 31, 2009 and the selected balance sheet data as of December 31, 2009 and 2008 are derived from, and qualified by reference to, our audited Consolidated Financial Statements, in Item 8 of this report. The selected consolidated results of operations and cash flow data related to 2006 and 2005 and selected consolidated balance sheet data related to 2006 and 2005 have been derived from audited financial statements not included in this report.

(1)

Cash, cash equivalents and marketable securities represent our cash and cash equivalents as reflected in our consolidated balance sheets and increased by our marketable securities outstanding as of the same balance sheet date. As of December 31, 2008, marketable securities totaling $1.8 million were included in long-term other assets in our consolidated balance sheet

(2)

Working capital represents the difference between our current assets and our current liabilities.

(3)

We recorded impairment charges of $20.1 million, $18.6 million and $122.7 million relating to our Buckeye mining operations, assets held for sale and to our Fort Union Plant for the years ended December 31, 2009, 2008 and 2007, respectively.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis of our financial condition and results of operations should be read in conjunction with, and are qualified by reference to, our Consolidated Financial Statements and related notes thereto in Item 8 of this report and Selected Financial Data included in Item 6 of this report. Certain statements set forth below under this caption constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform of 1995. Refer to the "Cautionary Statement About Forward Looking Statements" preceding Item 1 of this report. Also, for a discussion of certain risk factors applicable to our business and operations see "Risk Factors" in Item 1A of this report.

        We were founded in 1984 as a cleaner coal technology, energy production and environmental solutions company focused on developing our proprietary technologies. In the last two years, we have sharpened our focus as a carbon technology company. We have developed two proprietary, patented, and potentially transformative green technologies: the GreenCert suite of software and services and K-Fuel. Our GreenCert technology is a scientifically accurate and scalable environment intelligence solution that measures greenhouse gases (or GHG) and other environmental costs enabling customers to manage and report their environmental assets and liabilities. GreenCert, built on IBM's Service-Oriented Architecture (or SOA), is the environment intelligence solution that provides customers the end-to-end visibility and traceability necessary to measure their complete environmental footprint. K-Fuel, our clean coal technology significantly improves the performance of low-rank coals yielding higher efficiency and lower emissions.

        We are continuing the development of our GreenCert suite of software and services. GreenCert is an accurate and scalable environmental intelligence solution that quantifies GHG emission avoidances and reductions and generates verifiable emissions offsets. GreenCert provides real-time, multiple method data analysis to increase accuracy and reduce uncertainty to quantify incremental improvements. GreenCert also enables enterprises to reduce overall costs via the identification of significant operational efficiencies, compliance and risk reduction and sustainability measures. We intend to sell GreenCert as an on-premise offering and as a hosted software as a service (SaaS) solution, both with annual licensing fees and renewal fees.

        Over the past year, we have been evaluating several alternatives related to our strategic positioning, including the potential sale of Buckeye. As further described in Item 1—Business, on March 12, 2010, we signed a definitive agreement with Rosebud Mining Company with respect to the sale of certain net assets of Buckeye for $27.9 million, in addition to the the release of $5.0 million of cash reclamation bonds. Further, $2.8 million of the purchase price will be deposited into escrow for a period of twelve months to cover amounts payable to Rosebud pursuant to the indemnification provision of the sales agreement. The transaction is subject to customary closing conditions and the completion of Rosebud's due diligence. The sale is expected to close in April 2010, but in any event no later than June 30, 2010. The proceeds from the sale of Buckeye will be used to retire the outstanding 2009 Notes including fees and accrued interest of $21.1 million, to fund related transaction expenses estimated at $2.5 million and for general working capital purposes. We recorded an impairment charge of $20.1 million to write down these assets to their fair market value.

        With the sale of Buckeye we will be able to better focus our resources on core business activities, including the K-Fuel technology. We have terminated the contemplated spin-off of the K-Fuel technology as previously announced. Concurrently, Evergreen-China signed a letter of intent with a large Chinese integrated utility and chemical manufacturer to build a K-Fuel plant in Inner Mongolia to produce K-Fuel refined coal from low ranked lignite feedstock.

        The consolidated financial statements include our accounts and the accounts of our wholly and majority-owned subsidiaries. We consolidate all of our majority-owned subsidiaries and reflect as

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minority interest the portion of these entities that we do not own and recorded in other long-term liabilities. We do not consolidate our Chinese joint venture, Evergreen-China, but record the activity using the equity method of investment. Intercompany transactions and balances have been eliminated.

        Our segments include the GreenCert segment, Plant segment, Mining segment and Technology segment. The GreenCert segment reflects activities related to the measurement of green house gases and certification of environmental improvements as carbon credits. The Plant segment primarily represents revenue and costs related to our Fort Union plant near Gillette, Wyoming, at which we suspended operations in March 2008. The Mining segment primarily represents our mining operations of our subsidiary, Buckeye, and includes certain marketing personnel, the ash disposal facility and the preparation and blending facility. The Technology segment is comprised of all other operations that use, apply, own or otherwise advance our proprietary patented K-Fuel process, including our headquarters and related operations, activities of Evergreen Energy Asia Pacific Corp. and KFx Technology, LLC, which holds the patents to our technology. Corporate costs within our Technology segment are allocated to our other segments, generally on a percentage based on the number of employees, total segment operating expenses, or segment operating expenses plus segment capital expenditures.

Significant Trends

        For the last several years, our operations have been focused on developing our two technologies GreenCert and K-Fuel and the construction of the Fort Union plant. To date, we have not yet generated significant revenues from either of these technologies. Historically most of our costs are related to general and administrative expenses. With the addition of Buckeye, we have begun to generate revenue and incur more substantial mining costs. As previously discussed, we have entered into an agreement to sell certain of our mining segments assets and as a result, do not expect there to be any mining revenues and limited mining expenses after the completion of this sale. In the future, we plan to identify potential future strategic partners for GreenCert, in addition to IBM, EIM and Black and Veatch, to assist in the development, testing and roll-out of our products. Potential partners include companies offering services or products such as: energy engineering; consulting; power generation performance optimization; environmental consulting; and products relating to sensor systems and devices, data collection devices, or other products that support energy or power plant operations. Through our GreenCert software we plan to generate revenues through measurement of baseline emissions, assess and identify capital and operational improvements and site-specific, highly-customized solution that enables the quantification and monetization of the emissions reductions and efficiency improvements. We plan to license our K-Fuel technology, focusing on the Asia Pacific region of the world through Evergreen-China. The following discussion and analysis is focused on the events and trends that we believe have or will have in the future the most significant impact on our business.

Revenue Trends

        In the future we expect to generate revenue from the following sources:

•

revenues from licensing our GreenCert technology;



•

revenues from renewal fees from our GreenCert technology;



•

revenues from the measurement of carbon credits using our GreenCert technology;



•

revenues from site specific efficiency improvements using our GreenCert technology;



•

revenues from pilot projects using our GreenCert technology;



•

revenues for supporting our GreenCert technology; and



•

coal sales from our Buckeye operations for the period during which we continue to own it;

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•

revenues from K-Fuel licensing.

Expense Trends

GreenCert

        As we develop and implement our GreenCert technology we will incur additional operational cost such as:

•

payroll and related burdens;



•

outsourced professional fees associated with the development of GreenCert software;



•

consulting costs for pilot deployment; and



•

professional fees related to the deployment of site-specific, highly-customized solution for the quantification and monetization of emissions.

General and Administrative Expenses

        As we identify business development opportunities and generally expand our business, including hiring additional personnel at our corporate office, GreenCert locations and increasing outsourced professional services, we will incur additional expenses, the most significant of which are:

•

payroll and related burdens;



•

non-cash, share-based compensation;



•

sales and marketing costs for GreenCert technology;



•

rent and utilities; and



•

professional support fees.

        We anticipate that accounting for non-cash, share-based compensation will add approximately $6.0 million to $10.0 million per year in the foreseeable future to our expenses. In the event we should achieve certain stock price targets, we would significantly accelerate recognition of these costs. Costs such as payroll and related burdens, professional support fees and utilities are variable costs that increase with size and adding locations. As we develop our GreenCert and K-Fuel technologies we expect these costs to increase in future periods.

Coal Mining OperatingEexpenses

        We incur mine operating expenses including all costs associated with the mining of saleable coal and costs relating to our coal ash disposal facility as a result of Buckeye's operations. As previously discussed, we have entered into an agreement to sell certain mining segment assets and as a result, do not expect there to be any revenues and limited mining expenses after the completion of this sale.

Fort Union

        In March 2008, we suspended operations at our Fort Union plant in order to redirect constrained resources, both capital and human, to focus on the commercialization of this process in future K-Fuel plants. Suspending production at Fort Union enabled us to reduce our cash expenditures. We will continue to incur various costs related to maintaining the site in a non-operational mode.

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Results of Operations

Comparison of Years Ended December 31, 2009 and 2008

Revenue

        Revenues for the year ended December 31, 2009 were $50.7 million compared to $58.9 million for the same period ended December 31, 2008. With the sale of Buckeye, we anticipate our future mining revenues to decline.

        Revenues in our Mining segment for the year ended December 31, 2009 were $50.2 million and $58.4 million for the same period ended December 31, 2008 respectively, as follows:

•

Coal revenue includes mined raw and prepared coal sales within our Buckeye operations. Buckeye coal sales, including transportation costs charged to customers, were $46.0 million and $50.7 million, for the years ended December 31, 2009 and 2008, respectively. Coal sales for the year ended December 31, 2009 were 566,600 tons at $66.18 sales realization per ton sold net of transportation costs of $8.5 million compared to 727,200 tons at $58.03 sales realization per tons sold, net of transportation cost of $8.5 million for the year ended December 31, 2008. Our coal price per ton increased due to our increase in our pre-sold negotiated price per ton. However, revenues decreased due to the depressed economy and the unusually mild summer temperatures in the North East region of the United States, both of which have led to lower than previously forecasted coal prices and reduced coal consumption. However, sales realization for the year ended December 31, 2009 increased primarily due to higher coal prices realized during the first quarter of 2009 compared to the same period ended 2008.



•

Net brokered coal sales, include the revenues reduced by costs associated with the purchase of coal from other coal producers, which we ship directly to customers. We recognized $5,000 of net revenue for the year ended December 31, 2009 compared to $437,000 of net revenue for the year ended December 31, 2008. We enter into brokered coal sales as opportunities arise or as needed to meet certain customers requests, and as a result, revenues in this area fluctuate.



•

Ash disposal revenues primarily include revenues generated from the disposal of coal combustion bi-products at our ash pit in Ohio. Ash disposal revenues were $4.2 million and $7.3 million for years ended December 31, 2009 and 2008, respectively. The decrease for the year ended December 31, 2009 was due to decreased disposal volume from one of our large customers.

        K-Fuel refined coal revenue is comprised of sales of our K-Fuel product to third parties. Blended K-Fuel refined coal revenue represents the proportionate revenue related to K-Fuel that has been blended with other raw or prepared coal from our Buckeye operations and sold to third parties. The remaining revenue related to the raw or prepared coal is reflected in Mining revenues. K-Fuel refined coal and blended K-Fuel refined coal sales were $0 and $463,000 for the years ended December 31, 2009 and 2008, respectively and are included in our Plant segment.

Coal Mining Operating Expenses

        Our coal mining operating expenses include all costs associated with the mining of saleable coal and costs relating to our coal ash disposal facility at Buckeye, which principally comprises our Mining segment.

Coal mining operating expenses

        Coal mining operating expenses include employee-related costs, outside contracted mining costs for our underground mines, internal and external coal transportation costs, blasting, drilling, heavy equipment costs, purchased coal and other mining-related costs. Coal mining operating expenses were

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$40.0 million and $42.4 million for the years ended December 31, 2009 and 2008, respectively. Coal mining operating expenses decreased for the year ended December 31, 2009 compared to 2008. However, costs per ton increased during this same period due to more than expected ash and rock content thus increasing transportation costs and preparation/separation costs.

Ash disposal

        Ash disposal expenses include employee-related costs, consulting costs, costs of repairs and maintaining culverts and drainage ponds, transportation, and heavy equipment costs and other costs associated with the ash disposal facility. Ash disposal expenses were $3.5 million and $5.4 million for the periods ended December 31, 2009 and 2008, respectively. The decrease for the year ended December 31, 2009 is in correlation with the decrease in revenue for the same period.

General and Administrative

        Corporate costs within our Technology segment are allocated to our other segments, generally on a percentage based on the number of employees, total segment operating expenses or segment operating expenses plus segment capital expenditures. As a result of idling our Fort Union plant, these allocated costs have significantly decreased in our Plant segment and increased in other segments most notably in our Technology and GreenCert segments, for the year ended 2009 when compared to 2008.

        The following table summarizes our general and administrative costs for the years ended December 31, 2009 and 2008.

        Non-cash, share-based compensation expenses were $4.8 million and $6.0 million for the years ended December 31, 2009 and 2008, respectively, most of which related to our Technology segment. The decrease for the year ended 2009 was primarily due to the reduction of our workforce and the related forfeiture of the grants. We also recognized a one-time decrease due to the retirement of a former officer and the impact of his retirement on his restricted stock grant. Since the restricted shares never vested and were forfeited upon retirement, the cumulative non-cash compensation expense recorded since 2005 was reversed. This reversal of non-cash compensation totaled $2.9 million for the year ended December 31, 2009. The decreases were partially offset by a transition agreement we entered into with another former officer. Pursuant to that agreement, we accelerated the restricted stock grant and recorded $3.3 million of non-cash compensation for the year ended December 31, 2009.

        Employee-related costs primarily include salaries and wages, temporary employees, bonuses, benefits, employer payroll taxes and education and training. The following table summarizes our

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employee-related costs related to each of our segments for the years ended December 31, 2009 and 2008.

        The decrease for the year ended December 31, 2009 in comparison to the same period in 2008 was primarily due to our cost cutting measures which resulted in lower employee count in our Technology and Plant segments. This decrease was offset by the addition of personnel to our GreenCert segment and severance expense for two former executive officers in the amount of $525,000 in our Technology segment.

        Professional fees include legal, audit and accounting, public relations, governmental relations and similar costs. The following table summarizes our professional fees related to each of our segments for the years ended December 31, 2009 and 2008.

        The increase for the year ended December 31, 2009 compared the year ended 2008 was due to legal fees related to certain financing transactions that were not consummated, fees related to the marketing of Buckeye and international work, all related to our Technology segment, and filing patent applications for our GreenCert technology in our GreenCert segment.

        Office and travel costs include airfare, lodging, meals, office rent, marketing, office supplies, phone, publications, subscriptions and utilities. The following table summarizes our office and travel costs related to each of our segments for years ended December 31, 2009 and 2008.

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