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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. [REVISE? SEE
MD&A.]
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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