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5. Notes Payable
 6 Months Ended
Jun. 30, 2013
Debt Disclosure [Abstract]  
5. Notes Payable

 

Debt consists of the notes from our senior lender, Third Eye Capital, acting as Agent for the Purchasers (Third Eye Capital), other working capital lenders and subordinated lenders as follows:

 

    June 30, 2013     December 31, 2012  
Third Eye Capital term note   $ 7,600,638     $ 6,679,466  
Third Eye Capital revolving credit facility     33,033,679       23,378,535  
Third Eye Capital revenue participation term note     8,916,603       7,406,224  
Third Eye Capital acquisition term note     17,118,630       14,768,846  
Cilion shareholder Seller note payable     4,439,720       4,011,430  
State Bank of India secured term loan     5,683,159       5,756,752  
Revolving line of credit (related party)     –       1,540,074  
Subordinated notes     4,749,494       3,338,114  
EB-5 long term promissory notes     1,021,740       1,006,863  
Unsecured working capital loans and short-term notes     1,125,853       2,159,291  
Total debt     83,689,516       70,045,595  
Less current portion of debt     11,962,099       34,523,591  
Total long term debt   $ 71,727,417     $ 35,522,004  
                 

 

Third Eye Capital.  On July 6, 2012, Aemetis, Inc. and Aemetis Advanced Fuels Keyes, Inc., entered into an Amended and Restated Note Purchase Agreement with Third Eye Capital. Third Eye Capital extended credit in the form of (i) senior secured revolving loans in an aggregate principal amount of $18,000,000 (“Revolving Credit Facility”); (ii) senior secured term loans in the principal amount of $10,000,000 to convert the Revenue Participation agreement to a Note(“Revenue Participation Term Notes”); and (iii) senior secured term loans in an aggregate principal amount of $15,000,000 (“Acquisition Term Notes”) used to fund the cash portion of the acquisition of Cilion, Inc. After this financing transaction, Third Eye Capital obtained enough equity ownership in the Company to be considered a related party.

  

On October 18, 2012, Third Eye Capital agreed to (i) extend the maturity date of the Term Notes to July 6, 2014; (ii) to increase the amount of the Revolving Loan Facility by $6,000,000, to a total of $24,000,000; (iii) modify the redemption waterfall so that any payments would be applied first to the increase in the Revolving notes; (iv) grant waivers to the Borrowers’ obligation to pay or comply, and any event of default which has occurred or may occur as a result of such failures of the Borrowers to pay or comply with certain financial covenants and principal payments, including financial covenants for the quarter ended September 30 and December 31, 2012; and (v) agree to defer interest payments until the earlier of certain events described in the Limited Waiver or February 1, 2013. As consideration for Amendment No. 1, the Company agreed to pay Third Eye Capital: (i) a waiver fee in the amount of $4,000,000; and (ii) cash in the amount of $28,377 for certain unreimbursed costs. The $6,000,000increase in the Revolving Credit Facility may not be drawn upon due to the additional credit being set aside for fee payments. An immediate $1,000,000 draw from the Revolving Credit Facility paid the first installment of the $4,000,000 waiver fee with the remaining payments due on January 1, 2013, April 1, 2013 and July 1, 2013.  Payment of the fees for Amendment No. 1 may be capitalized into the outstanding balance on the Revolving Credit Facility.

 

On February 27, 2013, Third Eye Capital provided financing in the amount of $3,100,000 for which the Company agreed and entered into Amendment No. 2 to: (i) provide a Notional Paydown by pledging addition collateral on the Revolving Portion of the Revolving Notes in the amount of $3,100,000, such Notional Paydown was replaced in the Limited Waiver and Amendment No. 3 with an increase in the Revolver Note and the collateral substitution of a pledge of 6,231,159 shares of stock held by McAfee Capital LLC (ii) grant waivers to the Borrowers’ obligation to pay or comply, including financial and production covenants for the quarter ended March 31 and June 30, 2013; (iii) extend the date of the next interest payment until the earlier of certain events described in the Limited Waiver or May 1, 2013, and (iv) allow the Borrowers to pay the Partial Amendment Fee of $1,000,000 required by Amendment No 1 and due January 1, 2013 as 1,481,481 shares of the Company’s common stock. As consideration for the amendment, the Company agreed to: (i) pay a waiver fee comprised of $1,500,000 and (ii) issue 750,000 common shares of the Company with a fair value of $414,712 at time of issuance. In addition, the interest rate on all outstanding indebtedness with Third Eye Capital increased 5% until certain conditions are met.

 

On April 15, 2013, Third Eye Capital provided waivers for which the Company agreed and entered into Amendment No. 3 for the following covenants of the Company in their entirety: (i) obligation to obtain an NASDAQ listing by April 1, 2013; (ii) obligation to cause the Chairman to enter into certain agreements; and (iii) obligation to deliver an auditor opinion as of and for the period ended December 31, 2012 without a going concern qualification.  In addition, Third Eye Capital agreed to (i) extend the completion date of the conversion of the Keyes Plant to accommodate an 80:20 corn-to-milo ratio to May 31, 2013, (ii) amend the redemption provision to require 50% of the net proceeds of any equity offering in excess of $1,500,000 to repay Amendment No.2 advance and 100% of the net proceeds of any equity offering in excess of $7,000,000 to repay Amendment No. 3, and (iii) increase the balance of the Revolving Credit Facility by an amount equal to the February 2013 advance of $3,100,000 and the waiver fee of $1,500,000.  As consideration for Amendment No. 3, the Company agreed to: (i) pay a waiver fee of $500,000 (which is added to the outstanding principal balance of the Revolving Notes, and (ii) require McAfee Capital, LLC to pledge and deliver an additional 6,231,159 Common Shares of the Company to Third Eye Capital. The $3,100,000 advance provided by Amendment No. 2, together with all accumulated interest, shall be repaid in full no later than September 30, 2013.

 

On April 19, 2013, Third Eye Capital provided additional borrowings of $2,000,000 with the same terms as the existing Revolving Credit Facility. As consideration for the Amendment No. 4 financing, the Company agreed to (i) pay Third Eye Capital a placement fee of $300,000 which shall be added to the promissory note and (ii) issue Third Eye Capital 1,000,000 shares of common stock of the Company. Eric A. McAfee, the Company’s CEO and Chairman of the Board, further agreed to secure all loans by Third Eye Capital with a blanket lien on substantially all of his personal assets.

 

On July 26, 2013 with an effective date of June 30, 2013, Third Eye Capital agreed to the Limited Waiver and Amendment No. 5 to waive the following covenants of the Company in their entirety: (i) obligation to achieve the Milo Conversion by May 31, 2013; (ii) obligation to make principal-reduction payments on weekly and quarter-end basis for the months of May 2013 and June 2013, and all such future payments; (iii) failure to pay accrued interest of $1,369,630 since April 1, 2013; (iv) requirement to maintain trailing free cash flow covenants for fiscal quarters ending June 30, 2013, September 30, 2013 and December 31, 2013 and (v) obligation not to exceed the  amount of its debts in a given proportion of the value its Keyes Plant.  In addition, Third Eye Capital agreed to extend the maturity date of the revolving credit facility to July 6, 2014.  As well, the Company agreed to (i) make daily interest payments equal to 20% of daily cash deposits from its operations (ii) remit cash deposits from EB-5 Program subscriptions to be applied as principal-reduction payments (ii) use net proceeds of any equity offering of the capital stock to make principal reduction payments (iii) pay accrued interests by issuing additional notes (iv) maintain minimum quarterly production of ethanol at the Keyes Plant of 10 million gallons per fiscal quarter; and (v) modify the waterfall payment schedule to provide priority repayment of the advances (principal and interests) provided by Third Eye Capital in February 2013 and April 2013. As consideration, the Company agreed to pay Third Eye Capital: (i) a waiver fee of $750,000 in shares of common stock; (ii) an amendment fee of $3,000,000 payable in the form of additional notes; (iii) an extension fee of $2,200,000 with $1,500,000 to be added to the principal balance of the revolving credit facility on July 6, 2013, $400,000 of the fee payable in cash or stock on August 22, 2013 and $300,000 of the fee payable in cash or stock on September 30, 2013.

 

The terms of Amendment No. 5 were evaluated in accordance with ASC 470-50 Debt – Modification and Extinguishment and it was determined the loans were extinguished subsequent to period end. Accordingly, a loss on debt extinguishment of approximately $2,521,000 will also be recorded during the three months ended September 30, 2013 reflecting the timing of the signing of the definitive agreements.  See Note 14. Subsequent Events.

 

Details about each Third Eye Capital financing facility follows:

 

A. Third Eye Capital Term Notes.  As of June 30, 2013 Aemetis Advanced Fuels Keyes had $7,600,638 in principal and interest outstanding.  The note matures on July 6, 2014.  Interest on the term notes accrues at 14%.  The notes contain various covenants, including but not limited to, minimum free cash flow and production requirements and restrictions on capital expenditures. On July 26, 2013, the Company received waivers for certain covenants by Amendment No. 5 waiving the requirement for minimum monthly base payments, interest payments and mandatory tiered redemption payments in favor of a daily cash flow sweep equal to 20% of cash deposits from operating activities.

 

B. Third Eye Capital Revolving Credit Facility. On July 6, 2012 Aemetis Advanced Fuels Keyes entered into a Revolving Credit Facility with a commitment of $18,000,000. Through various amendments discussed above, the amount of the Revolving Loan Facility was increased to approximately $39,000,000. Interest on the credit facility accrues at the prime rate plus 13.75% (17% as of June 30, 2013) payable monthly in arrears. The Revolving Credit Facility matures on July 6, 2014. As of June 30, 2013 Aemetis Advanced Fuels Keyes had $33,033,679 in principal and interest outstanding on the credit facility, net of unamortized discounts of $177,008 with available credit set aside to pay Third Eye Capital.

 

C. Third Eye Capital Revenue Participation Term Notes. The Revenue Participation Note bears interest at 5% per annum and matures on July 6, 2014. As of June 30, 2013 Aemetis Advanced Fuels Keyes had $8,916,603 in principal and interest outstanding net of unamortized discounts of $1,505,659.

 

D. Third Eye Capital Acquisition Term Notes.  The Acquisition Term Note accrues interest at the prime rate plus 10.75% plus 5% (14% as of June 30, 2013) and matures on July 6, 2013. As of June 30, 2013 Aemetis Facility Keyes had $17,118,630 in principal and interest outstanding net of unamortized discounts of $1,061,882.

 

The Third Eye Capital notes are secured by first-lien deeds of trust on all real and personal property, and assignment of proceeds from all government grants and guarantees from Aemetis, Inc. The Term Note, Acquisition Term Note, Revenue Participation Term Note and Revolving Credit Facility contain cross-collateral and cross-default provisions. McAfee Capital, solely owned by Eric McAfee, the Company’s Chairman and CEO, provided a guaranty of payment and performance secured by Company shares owned by the Guarantor. In addition, Eric McAfee provided a blank lien on substantially all of his personal assets, and a guarantee in the amount of $8,000,000 guaranty from McAfee Capital.

 

Cilion shareholder Seller note payable. The Company’s merger with Cilion on July 6, 2012 provided $5,000,000 in notes payable to Cilion shareholders as merger compensation subordinated to the senior secured Third Eye Capital notes.  The liability bears interest at 3% per annum and is due and payable after the Third Eye Capital Notes and Revolving Credit Facilities have been paid in full. As of June 30, 2013, Aemetis Facility Keyes had $4,439,720 in principal and interest outstanding, net of unamortized debt discount of $707,814.

 

State Bank of India secured term loan.  On July 17, 2008, Universal Biofuels Private Limited (“UBPL”), the Company’s India operating subsidiary, entered into a six year secured term loan with the State Bank of India in the amount of approximately $6,000,000.  The term loan matures in March 2014 and is secured by UBPL’s assets, consisting of the biodiesel plant and land in Kakinada.

 

In July 2008 the Company drew approximately $4,600,000 against the secured term loan.  The loan principal amount is repayable in 20 quarterly installments of approximately $270,000, using exchange rates corresponding to the date of payment, with the first installment due in June 2009 and the last installment payment due in March 2014.  As of June 30, 2013, the 12% interest rate under this facility is subject to adjustment every two years, based on 0.25% above the Reserve Bank of India advance rate.

 

The principal payments scheduled for June 2009 through June 2013 were not made. The term loan provides for liquidating damages at a rate of 2% per annum for the period of default.

 

On October 7, 2009, UBPL received a demand notice from the State Bank of India.  The notice informs UBPL that an event of default has occurred for failure to make an installment payment on the loan due in June 2009 and demands repayment of the entire outstanding indebtedness of 19.60 Crores (approximately $3,600,000) together with all accrued interest thereon and any applicable fees and expenses by October 10, 2009.  As of June 30, 2013, UBPL was in default on interest and principal repayments, and all covenants, including asset coverage and debt service coverage ratios.  Additional provisions of default include the bank having the unqualified right to disclose or publish the Company’s name and its director’s names as defaulter in any medium or media.  At the bank’s option, it may also demand payment of the balance of the loan, since the principal payments have been in default since June 2009.  As a result, the Company has classified the entire loan amount as current.  State Bank of India has filed a legal case before the Debt Recovery Tribunal (DRT), Hyderabad, for recovery of approximately $5,000,000 against the company and also impleaded Andhra Pradesh Industrial Infrastructure Corporation (APIIC) to expedite the process of registration of the factory land for which counter reply is yet to be filed by APIIC.  In the case that the Company is unable to prevail with its legal case, DRT may pass a decree for recovery of due amount, which will impact operations of the Company, including the action to seize company property for recovery of debt due. As of June 30, 2013 and December 31, 2012, the State Bank of India loan had $3,292,410 and $3,573,025, respectively, in principal outstanding and accrued interest plus default interest of $2,390,749 and $2,188,693 and unamortized issuance discount of $0 and $4,966, respectively.

 

Revolving line of credit (related party).  The Company has a subordinated Revolving Line of Credit Agreement (“RLOC”) with Laird Cagan and other related party investors for up to $5,000,000 of principal borrowings. The Revolving Line of Credit carried an interest rate of 10% per annum.  On April 18, 2013, the Company issued 1,826,547 shares of common stock and transferred an existing deposit held by Aemetis Advanced Fuels Keyes, Inc. in the amount of $170,000, as payment for $991,946 of interest and fees outstanding under the Credit Agreement and issued new term notes to two non-related parties in the amount of $560,612 for payment of the remaining principal, interest and fees.

 

During the three and six months ended June 30, 2013, Mr. Cagan’s investment group received no cash principal or interest payments. During the three months and six months ended June 30, 2012, Mr. Cagan’s investment group received $0 and $93,163, respectively, in cash interest payments. As of June 30, 2013 and December 31, 2012 the RLOC had a principal, interest and fees balance of $0 and $1,540,074, respectively. As of the publication of this report, no amounts remained available for future draw on the Revolving Loan Facility.

 

Subordinated Notes. On January 6 and January 9, 2012, Aemetis Advanced Fuels Keyes, Inc. entered into $3,000,000 in Note and Warrant Purchase Agreements with 5% annual interest rate with two accredited investors. An additional $600,000 and $800,000 in Notes were added to one of the existing accredited investor’s balance in May and December 2012, respectively. This same accredited investor received payments of $600,000 in principal and $3,288 in interest in July 2012. The Notes included 5-year warrants exercisable for 1,733,333 shares of Aemetis common stock. Interest is due at maturity. The Promissory Notes are guaranteed by Aemetis and are due and payable upon the earlier of (i) December 31, 2013; (ii) completion of an equity financing by AAFK or Aemetis in an amount of not less than $25,000,000; (iii) the completion of an Initial Public Offering by AAFK or Aemetis; or (iv) after the occurrence of an Event of Default, including failure to pay interest or principal when due and breaches of note covenants. Neither AAFK nor Aemetis may make any principal payments under the Subordinated Notes until all loans made by Third Eye Capital to AAFK are paid in full, except for a few exceptions where subordinated note investors will receive funds from EB-5 investments or sale of equipment.

 

On May 31, 2012, Aemetis Advanced Fuels Keyes, Inc. (AAFK) entered into an additional $110,000 in 5 percent annual interest rate Notes and Warrant Purchase Agreements with a related party, Laird Cagan. Mr. Cagan received one warrant for every three dollars of principal loaned or 36,667 warrants with 5-year exercise rights at $0.001 per share. The full amount of the $110,000 Note and accrued interest was paid in full on July 6, 2012.

 

On January 10, 2013 the subordinated note investors agreed to Amendment No. 1 to the 5% subordinated $3,000,000 promissory notes originally dated January 6 and January 9, 2012, which allowed for i) extending the maturity date to July 1, 2014, ii) increasing the interest rate to 10% per annum, iii) paying a 10% fee on the outstanding principal and interest as of December 31, 2012 and adding the 10% fee to the principal amount of the note, and, iv) receiving 1,000,000 warrants exercisable at a price of $0.001 per share.  The amendment of January 10, 2013 and the refinancing of December 21, 2012 were evaluated in accordance with ASC 470-50 Debt – Modification and Extinguishment and it was determined the loans were extinguished during the period and accordingly a loss on debt extinguishment of $956,480 was recorded.

 

On January 14, 2013, Laird Cagan, a related party, loaned $106,201 through a Promissory note maturing on April 30, 2013 with a 5 percent annualized interest rate and the right to exercise 53,101 warrants exercisable at $0.001 per share.

 

On January 24, 2013 an additional $300,000 in Promissory Notes were issued to an existing subordinated note investor with 150,000 warrants at $0.001 per share and 5 percent annual interest rate due April 30, 2013 (later extended to December 31, 2013 on May 23, 2013) with conditions for repayment of (i) the completion of an equity or debt private placement by the Company or Aemetis in an amount of not less than $25,000,000; (ii) the completion of a Initial Public Offering by the Company; and, (iii) the Company shall repay principal amount under the Note upon receipt of proceeds from the EB-5 investor program and from proceeds from California Energy Commission grants.

 

On May 23, 2013 Aemetis Advanced Fuels Keyes refinanced three existing subordinated promissory notes from the same accredited investor, which included: (i) the $500,000 December 28, 2012 5% Note; (ii) the $100,000 January 19, 2013 5% Note; and (iii) the $300,000 January 24, 2013 5% Note with a new annual interest rate of 10% and a new maturity date December 31, 2013. A 10 percent cash extension fee was paid by adding the fee to the balance of the new Note and 300,000 in common stock warrants were granted with a term of five years and an exercise price of $0.001 per share. We evaluated these May 23, 2013 amendments and the refinancing terms of the three Notes and determined in accordance with ASC 470-50 Debt – Modification and Extinguishment that the loans were extinguished and as a result a loss on debt extinguishment of $231,191 was recorded.

 

At June 30, 2013 and December 31, 2012, the Company owed, in aggregate, subordinated notes in the amount of $4,177,670 and $3,338,114 in principal and interest outstanding, net of unamortized issuance and fair value discounts of $488,431 and $612,365, respectively.

 

EB-5 long-term promissory notes.  EB-5 is a US government program authorized by the Immigration and Nationality Act designed to foster employment-based visa preference for immigrant investors to encourage the flow of capital into the U.S. economy and to promote employment of U.S. workers.

 

On March 4, 2011, and amended January 19, 2012, and July 24, 2012, the Company entered into a Note Purchase Agreement with Advanced BioEnergy, LP, a California limited Partnership authorized as a Regional Center to receive EB-5 investments, for the issuance of up to 72 subordinated convertible promissory notes bearing interest at 3%, each note in the principal amount of $500,000 due and payable four years from the date of the note for a total aggregate principal amount of up to $36,000,000.  The notes are convertible after three years at a conversion price of $3.00 per share.

 

Advanced BioEnergy, LP arranges investments with foreign investors, who each make investments in the Keyes plant project in investment increments of $500,000. The Company sold notes in the amount of $1,000,000 to the first two investors during the fourth quarter of 2012. As of June 30, 2013 $21,740 in accrued interest remained outstanding on the notes. The availability of the remaining $35,000,000 will be determined by the ability of Advanced BioEnergy, LP to attract additional qualified investors.

 

Unsecured working capital loans.  In November 2008, the Company entered into an operating agreement with Secunderabad Oils Limited (“Secunderabad”).  Under this agreement Secunderabad agreed to provide the Company with working capital, on an as needed basis, to fund the purchase of feedstock and other raw materials for its Kakinada biodiesel facility.  Working capital advances bear interest at the actual bank borrowing rate of Secunderabad of fifteen percent (15%).  In return, the Company agreed to pay Secunderabad an amount equal to 30% of the plant’s monthly net operating profit. In the event that the Company’s biodiesel facility operates at a loss, Secunderabad owes the Company 30% of the losses. The agreement can be terminated by either party at any time without penalty.

 

During the three and six months ended June 30, 2013, the Company made principal payments to Secunderabad of approximately $1,794,702 and $2,785,708, respectively, under the agreement and interest payments of approximately $36,642 and $128,814, respectively, for working capital funding.  During the three and six months ended June 30, 2012, the Company made principal payments to Secunderabad of approximately $1,201,964 and $2,131,703, respectively, under the agreement and interest payments of $34,686 and $116,150 respectively, for working capital funding.   At June 30, 2013 and December 31, 2012 the Company had $658,272 and $842,368 outstanding under this agreement, respectively, and included as current short-term borrowings on the balance sheet.

 

Short-term notes.  Aemetis Technologies, formerly Zymetis, Inc., carries certain debt obligations associated with a series of grants issued by the Maryland Department of Business and Economic Development to Zymetis prior to the merger.  These grants were converted to promissory notes with interest upon the achievement of certain objectives.

 

Scheduled debt repayments for loan obligations follow:

 

For the twelve months ending June 30,   Debt Repayments  
2014   $ 12,050,875  
2015     71,410,161  
2016     3,000,000  
2017     1,169,274  
Total debt     87,630,310  
Discounts     (3,940,794 )
Total debt, net of discounts   $ 83,689,516