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DEBT
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Sep. 30, 2011
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Dec. 31, 2010
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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.
|
Long-term
borrowings are summarized in the table below (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
(“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 Convertible Notes.
The
Convertible Notes mature on January 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
accrued interest recorded as accrued liabilities in the
consolidated balance sheets. The Company accrued
approximately $657,000 in interest with respect to the
Convertible Notes at December 31, 2010. The accrued interest
will be paid on the first installment date and monthly
thereafter. The interest rate will increase to 15% per annum
upon the occurrence of an event of default.
The
holders of the Convertible Notes are entitled to interest,
amortization payments and other amounts. The Company is
required to pay a late charge of 15% on any amount of
principal or other amounts due which are not paid when
due.
Interest
on the Convertible Notes is payable in arrears on specified
installment dates. If a holder elects to convert or redeem
all or any portion of a Convertible Note prior to the
maturity date, all interest that would have accrued on the
amount being converted or redeemed through the maturity date
will also be payable. If the Company elects to redeem all or
any portion of a Convertible Note prior to the maturity date,
all interest that would have accrued through the maturity
date on the amount redeemed will also be payable.
The
Company is obligated to make amortization payments with
respect to the principal amount of each Convertible Note on
each of the following dates (collectively, the
“Installment Dates”): (i) March 7, 2011; (ii) May
2, 2011; and (iii) the first trading day of each calendar
month thereafter. The amortizing portion of the principal of
each Convertible Note (the “Monthly Amortization
Amount”), will equal the fraction of each Convertible
Note, the numerator of which is equal to the original
outstanding principal amount of the Convertible Note and the
denominator of which is equal to the number of Installment
Dates remaining until the maturity date.
The
Company may elect to pay the Monthly Amortization Amount and
applicable interest in cash or shares of its common stock, at
its election, subject to the satisfaction of certain
conditions.
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, or 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 Convertible Notes are now convertible into
shares of the Company’s common stock at a price
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.
The
Company has agreed to pay “buy-in” damages of the
converting holder if the Company fails to timely deliver
common stock upon conversion of the Convertible Notes.
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 selling security 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 selling security holder.
The
number of shares of the Company’s common stock
issuable upon conversion of the Convertible Notes is based
on the Conversion Price at the time, whether by the Company
or holder. The Conversion Price is not to exceed $5.95 and,
unless the Company obtains a waiver, it cannot issue shares
of common stock if the Conversion Price is less than $1.40.
Based on this range of Conversion Prices, at December 31,
2010, the Convertible Notes were convertible into between
7,019,000 and 26,099,000 shares of the Company’s
common stock. At March 31, 2011, based on the current
Conversion Price of $3.99, the Convertible Notes were
convertible into 9,903,000 shares of the Company’s
common stock.
The
Company has determined that the conversion feature in the
Convertible Notes requires bifurcation and liability
classification and measurement, at fair value, and requires
evaluation at each reporting period. Under ASC 825, Financial
Instruments, the FASB provides an alternative to
bifurcation and companies may instead elect fair value
measurement for the entire instrument, including the debt
and conversion feature. The Company has elected the fair
value alternative in order to simplify its accounting and
reporting of the Convertible Notes upon issuance.
Accordingly, the Company has adjusted the carrying value of
the Convertible Notes to their fair value as of December
31, 2010, reflected in fair value adjustments of
convertible notes and warrants in the statements of
operations. The recorded fair value of the Convertible
Notes of $38,108,000 differs from the stated unpaid
principal amounts of $35,000,000 as of December 31, 2010.
The Company recorded fair value adjustments of $2,474,000
for its initial recognition and $634,000 for subsequent
changes in fair value, which is attributed to term
shortening 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 13 for
the Company’s fair value assumptions.
Registration
Rights Agreements –
In connection with the sale of the Initial Notes and the
Initial Warrants, the Company entered into a registration
rights agreement with all of the investors to file a
registration statement on Form S-1 with the Securities and
Exchange Commission by October 27, 2010 for the resale by
the investors of 150% of the sum of (i) the maximum number
of shares of common stock initially issuable upon
conversion of the Initial Notes (assuming an initial
Conversion Price of $5.95), (ii) the maximum number of
shares of common stock payable as interest under the
Initial Notes (assuming all interest became due and payable
on October 25, 2010, calculated using an interest rate of
8% per annum compounded monthly through the maturity date
and a Conversion Price of $5.95, which was the closing
price of the Company's common stock on October 25, 2010),
and (iii) the maximum number of shares of common stock
issuable upon exercise of the Initial Warrants. In response
to Securities and Exchange Commission comments to the
Company's initial registration statement on Form S-1 filed
on October 27, 2010, the Company determined that a
reduction of the total number of shares to be registered
would be required to satisfy the requirements of Rule 415
of the Securities Act of 1933, as amended ("Securities
Act"). As a result, the Company agreed to reduce the total
number of shares to be registered to an aggregate of
3,968,423 shares issuable upon conversion of the Initial
Notes and in lieu of cash payments on the Initial Notes
(i.e., a portion of the shares of common stock that may be
issued as interest payments under the Initial Notes). Under
the terms of Exchange Agreements, each of the investors
agreed to amend the Company's registration obligations to
allow the Company to register an aggregate of 3,968,423
shares of its common stock, consisting of 3,492,212
conversion shares and 476,211 interest shares, and agreed
to extend the date by which a registration statement to
register 3,492,212 conversion shares and 476,211 interest
shares is declared effective from January 25, 2011 to
February 8, 2011.
Prior
to entering into the Exchange Agreements, the Company
withdrew the registration statement it filed to register
for resale by the investors certain of the shares
issuable under the Initial Notes. In compliance with the
Company's obligations under the registration rights
agreement, as amended by the Exchange Agreements, the
Company filed a registration statement on Form S-1 to
register for resale by the investors 3,492,212 conversion
shares and 476,211 interest shares issuable under the
Convertible Notes.
Subject
to grace periods, the Company is required to keep effective a
registration statement for resale by the investors on a
delayed or continuous basis at then-prevailing market prices
at all times until the earlier of (i) the date as of which
all of the investors may sell all of the shares of common
stock required to be covered by the registration statement
without restriction under Rule 144 under the Securities Act
(including volume restrictions) and without the need for
current public information required by Rule 144(c), if
applicable), or (ii) the date on which the investors have
sold all of the shares of common stock covered by the
registration statement.
The
Company must pay registration delay payments of 2% of each
investor's initial investment in the Initial Notes per month
if the registration statement ceases to be effective prior to
the expiration of deadlines provided for in the registration
rights agreement. The registration rights agreement contains
other customary terms and conditions, including various
indemnification provisions in connection with the
registration of the shares of common stock underlying the
Convertible Notes and the shares of common stock underlying
the Warrants. The Company believes it is in compliance with
these agreements.
New
PE Holdco Term Debt and Working Capital Line of Credit
– On the Effective Date, approximately $294,478,000 in
prepetition and post petition secured indebtedness of the
Plant Owners was restructured under a Credit Agreement
entered into on June 25, 2010 among Plant Owners, as
borrowers, and West LB, AG, New York Branch, and other
lenders. Under the Plan, the Plant Owners’ existing
prepetition and post petition secured indebtedness of
approximately $294,478,000 was restructured to consist of
approximately $50,000,000, plus accrued interest of
$1,279,000, in three-year term loans and a new three-year
revolving credit facility of up to $35,000,000 to fund
working capital requirements of New PE Holdco. The term loan
and revolving credit facility require monthly interest
payments at a floating rate equal to the three month London
Interbank Offered Rate (“LIBOR”) or the Prime
Rate of interest, as elected by the borrower, plus 10.0%. At
December 31, 2010, the rate was approximately 13.75%.
Repayments of principal are based on available free cash flow
of the borrower, until maturity, when all principal amounts
are due. During 2010, no principal payments were made on
these facilities. The term loan and revolving credit facility
represent permanent financing and are collateralized by a
perfected, first-priority security interest in all of the
assets, including inventories and all rights, title and
interest in all tangible and intangible assets, of New PE
Holdco.
Notes
Payable to Related Party – In November 2008, the
Company restructured certain construction related loans of
$30,000,000 in the aggregate with Lyles United, LLC
(“Lyles United”) by paying all accrued and unpaid
interest thereon and issuing an amended and restated
promissory note in the principal amount of $30,000,000. The
amended and restated promissory note was due March 15, 2009
and accrued interest at the Prime Rate of interest, plus
3.00. The Company and Lyles United jointly instructed PEI
California pursuant to an Irrevocable Joint Instruction
Letter to remit directly to Lyles United any cash
distributions received by PEI California on account of its
ownership interests in Front Range until such time as the
amended and restated promissory note was repaid in
full.
In
October 2008, upon completion of the Stockton facility, the
Company converted final unpaid construction costs to an
unsecured note payable. The note payable was between the
Company and Lyles Mechanical Co. in the principal amount of
$1,500,000 and was due with accrued interest on March 31,
2009. Interest accrued at the Prime Rate of interest, plus
2.00%.
In
February 2009, the Company notified Lyles United and Lyles
Mechanical Co. (collectively, “Lyles”) that it
would not be able to pay off its notes due March 15 and March
31, 2009 and as a result, entered into a forbearance
agreement. Under the terms of the forbearance agreement,
Lyles agreed to forbear from exercising rights and remedies
against the Company through April 30, 2009. These
forbearances were not extended.
In
March 2010, the Company announced agreements designed to
satisfy this indebtedness. 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 (“VWAP”) 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 in four
successive transactions. For the year ended December 31,
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.
On
October 6, 2010, the Company paid in full all remaining
principal, accrued interest and fees owed to Lyles using the
proceeds from the sale of its interest in Front Range and the
issuance and sale of the Convertible Notes and
Warrants.
DIP
Financing and Rollup – Certain of the Plant
Owners’ existing lenders (the “DIP
Lenders”) entered into a credit agreement for up to a
total of $25,000,000 in debtor-in-possession financing
(“DIP Financing”), not including a DIP rollup
amount (as defined below). The DIP Financing provided for a
first priority lien in the Chapter 11 Filings. Proceeds of
the DIP Financing were used, among other things, to fund the
working capital and general corporate needs of the Company
and the costs of the Chapter 11 Filings in accordance with an
approved budget. The DIP Financing allowed the DIP Lenders a
first priority lien on a dollar-for-dollar basis of their
term loans and working capital lines of credit funded prior
to the Chapter 11 Filings for each dollar of DIP Financing
(“DIP Rollup”). As the Plant Owners drew down on
their DIP Financing, an equivalent amount was reclassified
from liabilities subject to compromise to DIP financing and
rollup. For the period the DIP Financing was outstanding, the
interest rate was approximately 14% per annum. As discussed
in Note 7, the DIP Financing and DIP Rollup balances were
removed from the Company’s consolidated financial
statements.
Notes
Payable to Related Parties – On March 31, 2009,
the Company’s Chairman of the Board and its Chief
Executive Officer provided funds in an aggregate amount of
$2,000,000 for general working capital purposes, in exchange
for two unsecured promissory notes issued by the Company.
Interest on the unpaid principal amounts accrues at a rate of
8.00% per annum. The maturity date of these notes was
initially extended to January 5, 2011. On October 29, 2010,
the Company paid all accrued interest and $750,000 in
principal under these notes. On November 5, 2010, the Company
entered into amendments to these notes, further extending
their maturity dates to March 31, 2012.
Kinergy
Line of Credit – Kinergy has a working capital
line of credit with Wells Fargo Capital Finance, LLC in an
aggregate amount of up to $20,000,000 based on
Kinergy’s eligible accounts receivable and inventory
levels, subject to any reserves established by Wells Fargo
Capital Finance LLC. The credit facility is subject to
certain other sublimits, including as to inventory loan
limits. Interest accrues under the line of credit at a rate
equal to (i) three month LIBOR, plus (ii) a specified
applicable margin ranging between 3.50% and 4.50%. The
applicable margin was 4.3% at December 31, 2010. The credit
facility’s monthly unused line fee is 0.50% of the
amount by which the maximum credit under the facility exceeds
the average daily principal balance. Kinergy is also required
to pay customary fees and expenses associated with the credit
facility and issuances of letters of credit. In addition,
Kinergy is responsible for a $3,000 monthly servicing fee.
Payments that may be made by Kinergy to the Company as
reimbursement for management and other services provided by
the Company to Kinergy are limited to $750,000 per fiscal
quarter in 2011, $800,000 per fiscal quarter in 2012, and
$850,000 per fiscal quarter in 2013. Kinergy is required to
meet specified EBITDA and fixed coverage ratio financial
covenants under the credit facility and is prohibited from
incurring any additional indebtedness (other than specific
intercompany indebtedness) or making any capital expenditures
in excess of $100,000 absent the lender’s prior
consent. The Company believes it is in compliance with these
covenants. Kinergy’s obligations under the credit
facility are secured by a first-priority security interest in
all of its assets in favor of the lender. The line of credit
matures on December 31, 2013. The Company has guaranteed all
of Kinergy’s obligations under the line of
credit.
Front
Range Related Debt – Front Range had a swap
note, which was a term loan, with a floating interest rate,
established on a quarterly basis, equal to the 90-day LIBOR
plus 3.00%. Front Range entered into a swap contract with the
lender to provide a fixed rate of 8.16%. The loan matured in
five years, but required principal payments due based on a
ten-year amortization schedule. In addition, Front Range had
a long-term revolving note in the amount of $2,500,000 and
carried a floating interest rate equal to the greater of
5.00% or the 30-day LIBOR, plus 3.25-4.00%, depending on a
debt-to-net worth ratio. As of December 31, 2009, the
interest rate was 5.00%. The revolving loan matured in five
years, but was amortized over ten years with a final payment
due August 10, 2011. As of December 31, 2009, there were no
borrowings on the revolving note.
The
Front Range related notes referred to above represented
permanent financing and were collateralized by a perfected,
priority security interest in all of the assets of Front
Range, including inventories and all rights, title and
interest in all tangible and intangible assets of Front
Range; a pledge of 100% of the ownership interest in Front
Range; an assignment of all revenues produced by Front Range;
a pledge and assignment of Front Range’s material
contracts and documents, to the extent assignable; all
contractual cash flows associated with such agreements; and
any other collateral security as the lender may reasonably
request. These collateralizations restricted the assets and
revenues as well as future financing strategies of Front
Range, the Company’s VIE, but did not apply to, nor
have bearing upon any financing strategies that the Company
may have chosen to undertake.
Front
Range was subject to certain loan covenants. Under these
covenants, Front Range was required to maintain a certain
fixed-charge coverage ratio, a minimum level of working
capital and a minimum level of net worth. The covenants also
set a maximum amount of additional debt that may be incurred
by Front Range. The covenants also limited annual
distributions that may have been made to owners of Front
Range, including the Company, based on Front Range’s
leverage ratio.
Effective
January 1, 2010, the Company deconsolidated the results of
Front Range, and along with the other assets and liabilities
of Front Range, the Company removed all debt balances
associated with Front Range.
Interest
Expense on Borrowings – Interest expense on all
borrowings discussed above, which excludes certain
liabilities of the Plant Owners, was $6,261,000 and
$13,771,000 for
the years ended December 31, 2010 and 2009,
respectively.
Long-term
debt due in each of the next three years is as follows (in
thousands):
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