5. DEBT. |
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| Debt Disclosure [Text Block] |
Long-term
borrowings are summarized as follows (in thousands):
Convertible
Notes – On October 6, 2010, the Company raised
$35,000,000 through the issuance and sale of $35,000,000 in
principal amount of secured convertible notes (“Initial
Notes”) and warrants (“Initial Warrants”)
to purchase an aggregate of 2,941,178 shares of the
Company’s common stock. On January 7, 2011, under the
terms of exchange agreements with the holders of the Initial
Notes and Initial Warrants, the Company issued $35,000,000 in
principal amount of secured convertible notes (“January
Convertible Notes”) in exchange for the Initial Notes
and warrants (“Warrants”) to purchase an
aggregate of 2,941,178 shares of the Company’s common
stock in exchange for the Initial Warrants.
The
transactions contemplated by the exchange agreements were
entered into to, among other things, clarify previously
ambiguous language in the Initial Notes and Initial Warrants,
provide the Company with additional time to meet its
registration obligations and to add additional flexibility to
the Company’s ability to incur indebtedness
subordinated to the January Convertible Notes. As discussed
below, the January Convertible Notes were valued at fair
value, and as such, these modifications had been reflected in
the fair value adjustments for the period.
On
June 30, 2011, under the terms of exchange agreements with
the holders of the January Convertible Notes, the Company
issued $23,750,000 in principal amount, reflecting the amount
then outstanding under the January Convertible Notes, of
secured convertible notes (“June Convertible
Notes”) in exchange for the January Convertible
Notes.
The
transactions contemplated by the exchange agreements were
entered into to, among other things, defer the August 1, 2011
Installment Payment, add one additional month to the maturity
date and add a new additional conversion price option to the
holders as described further below. As discussed below, the
June Convertible Notes are valued at fair value, and as such,
these modifications are reflected in the fair value
adjustments for period ended September 30, 2011.
On
August 3, 2011, under the terms of exchange agreements with
the holders of the June Convertible Notes, the Company issued
approximately $17,170,000 in principal amount, reflecting the
amount then outstanding under the June Convertible Notes, of
secured convertible notes (“Convertible Notes”)
in exchange for the June Convertible Notes.
The
transactions contemplated by the exchange agreements were
entered into to, among other things, add three additional
months to the maturity date, add a new additional conversion
price option as described further below and reduced the Price
Failure threshold from $1.40 to $0.60. As discussed below,
the Convertible Notes are valued at fair value, and as such,
these modifications are reflected in the fair value
adjustments for period ended September 30, 2011.
The
Convertible Notes mature on May 6, 2012, subject to the right
of the lenders to extend the date (i) if an event of default
under the Convertible Notes has occurred and is continuing or
any event shall have occurred and be continuing that with the
passage of time and the failure to cure would result in an
event of default under the Convertible Notes, and (ii) for a
period of 20 business days after the consummation of specific
types of transactions involving a change of control. The
Convertible Notes bear interest at the rate of 8% per
annum, which is compounded monthly, with any accrued interest
recorded as accrued liabilities in the consolidated balance
sheets. The interest rate will increase to 15% per annum upon
the occurrence of an event of default. The Company had
approximately $62,000 and $657,000 in accrued interest with
respect to the Convertible Notes as of September 30, 2011 and
December 31, 2010, respectively.
The
Company is obligated to make amortization payments with
respect to the principal amount of each Convertible Note on
the first trading day of each calendar month after August 1,
2011 until the Maturity Date (collectively with the Maturity
Date, the “Installment Dates”).
On
each Installment Date occurring after August 1, 2011, the
Company shall pay on each Convertible Note an amount equal
to: (i) with respect to any Installment Date other than the
Maturity Date, the lesser of (A) the product of (I) the
quotient of (x) $21 million divided by (y) 9, multiplied by
(II) the fraction equal to (m) the principal amount of the
Initial Note on October 6, 2010 divided by (n) $35 million
and (B) the principal amount under the Convertible Note as of
such Installment Date, and (ii) with respect to the Maturity
Date, the principal amount under the Convertible Note,
together with, in each case of clauses (i) and (ii), the sum
of any accrued and unpaid Interest as of such Installment
Date under the Convertible Note and accrued and unpaid late
charges, if any, under the Convertible Note as of such
Installment Date (the “Installment Amount”). The
Company may elect to pay the Installment Amount in cash or
shares of its common stock, at its election, subject to the
satisfaction of certain conditions.
If
the Company elects to make all or part of an amortization
payment in shares of its common stock, it is required to
deliver to the holders of the Convertible Notes the amount of
shares of the Company’s common stock equal to the
portion of the amount being paid in shares of the
Company’s common stock divided by the lesser of the
then existing Conversion Price and 85% of the average of the
volume weighted average prices of the 5 lowest trading days
during the 20 consecutive trading day period ending on the
trading day immediately prior to the applicable Installment
Date.
All
amounts due under the Convertible Notes are convertible at
any time, in whole or in part, at the option of the holders
into shares of the Company’s common stock at a
specified conversion price (“Conversion Price”).
The Convertible Notes were initially convertible into shares
of the Company’s common stock at the initial Conversion
Price of $5.95 per share (“Fixed Conversion
Price”). The Conversion Price is not to exceed $5.95
and, unless the Company obtains a waiver, it cannot make
monthly amortization and interest payments in shares of
common stock if the Conversion Price is less than
$0.60.
The
Convertible Notes are now convertible by the holders into
shares of the Company’s common stock at a Conversion
Price that is determined as follows:
In
addition, if an event of default has occurred and is
continuing, the Conversion Price will be equal to the lesser
of (i) the Fixed Conversion Price, and (ii) the closing bid
price of the Company’s common stock on the trading date
immediately before the date of conversion.
The
Fixed Conversion Price is subject to adjustment for stock
splits, combinations or similar events. The Fixed Conversion
Price is subject to “full ratchet” anti-dilution
adjustment where if the Company was to issue or is deemed to
have issued specified securities at a price lower than the
then applicable Fixed Conversion Price, the Fixed Conversion
Price will immediately decline to equal the price at which
the Company issued or is deemed to have issued the
securities. In addition, if the Company sells or issues any
securities with “floating” conversion prices
based on the market price of its common stock, the holder of
a Convertible Note will have the right to substitute that
“floating” conversion price for the Fixed
Conversion Price upon conversion of all or part of the
Convertible Note.
If
the Company does not deliver shares of common stock due upon
conversion of a Convertible Note within 3 trading days of a
conversion, and, after such third trading day, the converting
holder purchases shares of the Company’s common stock
to deliver in satisfaction of a sale by the converting holder
of shares of common stock issuable upon the conversion that
the converting holder anticipated receiving from the Company,
upon request of the converting holder, the Company is
required to either (i) pay cash to the converting holder in
an amount equal to the converting holder’s total
purchase price for the shares of common stock so purchased
(the “Buy-In Price”), at which point the
Company’s obligation to deliver the shares issuable
upon the conversion shall terminate, or (ii) deliver shares
of common stock due upon conversion and pay cash to the
converting Holder in an amount equal to the excess (if any)
of the Buy-In Price over the market value of the shares
issuable upon conversion on the trading day immediately
before the conversion date.
The
Convertible Notes may not be converted if, after giving
effect to the conversion, the holder together with its
affiliates would beneficially own in excess of 4.99% or 9.99%
(which percentage has been established at the election of
each holder) of the Company’s outstanding shares of
common stock (the “Blocker”). The Blocker
applicable to the conversion of the Convertible Notes may be
raised or lowered to any other percentage not in excess of
9.99% or less than 4.99%, subject to an advance notice
period, at the option of the holder.
The
Company has elected to account for the Convertible Notes
using the fair value alternative in order to simplify its
accounting and reporting of the Convertible Notes.
Accordingly, the Company has adjusted the carrying value of
the Convertible Notes to their fair value as of September 30,
2011, as reflected in fair value adjustments on convertible
debt and warrants in the statements of operations. The
recorded fair value of the Convertible Notes of $10,896,000
differed from the stated unpaid principal amounts of
$9,329,000 as of September 30, 2011.
The
Company recorded income of $3,268,000 and $1,542,000 for fair
value adjustments for the three and nine months ended
September 30, 2011, respectively, for changes in fair value,
which adjustments are attributed to reduction in the
principal balances and reduction in the market value of the
Company’s common stock. There were no changes in fair
value of the Convertible Notes due to a change in the
estimated credit risk of the instruments. See Note 8 for the
Company’s fair value assumptions.
The
following table summarizes the Installment Amounts and
additional conversions by the note holders through September
30, 2011 (in thousands):
*
Cash Payment
On
October 3, 2011, the Company paid its Installment Amount in
cash of $928,500 in principal and $64,000 in interest on the
Convertible Notes. On November 1, 2011, the Company paid its
Installment Amount in cash of $5,000 in interest on the
Convertible Notes.
On
November 1, 2011, the Company notified the holders that it
would pay the Installment Amount due on December 1, 2011 in
cash.
In
addition to the cash payments above, since September 30, 2011
and through November 3, 2011, the Company issued an aggregate
of 28,481,000 shares of its common stock to
satisfy $8,181,000 in principal and $388,000 in interest
in respect of additional note conversions by holders of the
Convertible Notes.The Company intends to, subject to further
voluntary conversions, pay the remainder of the principal and
interest of approximately $220,000 in cash.
New
PE Holdco Working Capital Line of Credit – For
the nine months ended September 30, 2011, New PE Holdco
borrowed $9,000,000 on its working capital line of credit,
and as of September 30, 2011 had approximately $7,000,000 in
borrowing capacity under its line of credit.
Kinergy
Operating Line of Credit – In May 2011, Kinergy
and its lender amended and increased Kinergy’s credit
facility to up to $30,000,000, with an optional accordion
feature for an additional $5,000,000.
Loss
on Extinguishments of Debt – In 2010, the
Company announced agreements designed to satisfy its
indebtedness to Lyles United, LLC and Lyles Mechanical Co.
(collectively, “Lyles”). Socius CG II, Ltd.
(“Socius”) entered into purchase agreements with
Lyles under which Socius would purchase claims in respect of
the Company’s indebtedness in up to $5,000,000
tranches, which claims Socius would then settle in exchange
for shares of the Company’s common stock. Each tranche
was to be settled in exchange for the Company’s common
stock valued at a 20% discount to the volume weighted average
price of the Company’s common stock over a
predetermined trading period, which ranged from five to 20
trading days, immediately following the date on which the
shares were first issued to Socius. Under this arrangement,
the Company issued shares to Socius which settled outstanding
debt previously owed to Lyles. For the nine months ended
September 30, 2010, the Company issued an aggregate of
3,441,000 shares with an aggregate fair value of $21,159,000
in exchange for $19,000,000 in debt extinguishment, resulting
in an aggregate loss of $2,159,000. The Company determined
fair value based on the closing price of its shares on the
last day of the applicable trading period, which was the date
the net shares to be issued were determinable by the Company.
There were no issuances during the three months ended
September 30, 2010.
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