Note 7 - Long-Term Debt | 3 Months Ended |
Mar. 31, 2014 |
Disclosure Text Block [Abstract] | ' |
Long-term Debt [Text Block] | ' |
7 | Long-Term Debt | | | | | | | |
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Long-term debt consists of the following: |
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| | March 31, | | | December 31, | |
2014 | 2013 |
| | (Amounts in thousands) | |
Long-Term Debt: | | | | | | | | |
Mississippi Development Authority Loan | | $ | 69,375 | | | $ | 69,375 | |
Loan and Security Agreement | | | 109,142 | | | | 104,447 | |
October 2013 Note Purchase Agreement | | | 95,697 | | | | 95,697 | |
Less: unamortized debt discounts | | | (41,255 | ) | | | (41,571 | ) |
Long-term debt, net of discount | | | 232,959 | | | | 227,948 | |
Less: current portion | | | (3,750 | ) | | | (3,750 | ) |
Long-term debt, less current portion, net of discount | | $ | 229,209 | | | $ | 224,198 | |
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Senior Secured Promissory Note and Warrant Purchase Agreement |
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On March 31, 2014, the Company entered into a Senior Secured Promissory Note and Warrant Purchase Agreement with Khosla, and Khosla in its capacity as agent for the 2014 Note Purchaser. |
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The 2014 Note Purchase Agreement contemplates multiple tranches of financing of up to $25 million. The first tranche, which closed on April 3, 2014, consisted of the purchase by Khosla of $5.0 million of Senior Secured Mandatorily Convertible Notes (the “2014 Notes”) in exchange for a like amount of cash. The remaining tranches consist of the sale of additional 2014 Notes (the “Additional 2014 Notes”) to the 2014 Note Purchaser in principal amounts to be mutually agreed between the 2014 Note Purchaser and the Company for a like amount of cash at the beginning of each full month following the first tranche closing, provided that in each preceding month the Company satisfactorily achieves each of the milestones set forth in Annex A to the 2014 Note Purchase Agreement. The performance milestones require (i) the Company to demonstrate that it has made material progress in implementing its business, financial, operational and technology plans, (ii) the Company to demonstrate that there is a likelihood of eventual commercial success of the Company’s business plan when considered in light of both internal and external factors, including without limitation, market conditions, costs, competitive developments and an ability to secure financing for the Company and (iii) Khosla to believe that the purchase of additional notes is appropriate for the Company to continue its operations. |
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Khosla, or, if additional 2014 Note Purchasers become party to the 2014 Note Purchase Agreement in the future, the 2014 Note Purchasers holding a majority of the principal amount of all then-outstanding 2014 Notes (the “Required Purchasers”) will determine in their sole discretion whether applicable milestones have been satisfied. The aggregate amount of Additional 2014 Notes that may be sold under the 2014 Note Purchase Agreement may not exceed $20 million. |
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The closing of the additional tranches is subject to standard conditions, including notification pursuant to the Hart-Scott-Rodino Act that any applicable waiting period has expired, receipt of any necessary approvals by governmental authorities and the satisfaction of applicable milestones. |
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In addition, at each closing, the Company will issue to each 2014 Note Purchaser a warrant (each, a “2014 Warrant”) exercisable for a number of shares of Class A Common Stock equal to a fraction (i) whose numerator is 10% of the principal amount of the Note issued to such 2014 Note Purchaser as such closing, and (ii) whose denominator is $0.573. The amount of shares of Class A Common Stock for which a 2014 Warrant is exercisable assumes it is not being exercised on a net issuance basis. |
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In connection with the initial $5 million closing on April 3, 2014, the Company issued to Khosla a 2014 Warrant to purchase an aggregate of 872,600 shares of Class A common stock of the Company at an exercise price of $0.573 per share, which was the consolidated closing bid price for the Company’s Class A common stock on March 31, 2014. The 2014 Warrant was issued as partial consideration for Khosla’s entry into the 2014 Note Purchase Agreement and will expire 7 years from the date of the grant. Each 2014 Warrant may be exercised by payment of the exercise price in cash or on a net issuance basis. |
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The 2014 Notes have a maturity date that may be elected by the Required Purchasers at any time after July 1, 2014, provided that the Required Purchasers provide the Company with at least 10 days advance written notice of such date and provided further that if the Required Purchasers have not provided such notice prior to March 31, 2017, then the Maturity Date shall be April 2, 2017. The 2014 Notes accrue interest at a rate of 8% per annum (the “Applicable Rate”). The Company will pay interest on the principal amount of the Note on the first day of each full calendar month, beginning on July 1, 2014, provided that such interest may be paid in kind at the Company’s election by adding the interest then due to the unpaid principal amount of the Note. The 2014 Notes are secured by liens on fixtures, personal property and other assets of the Company specified in the 2014 Note Purchase Agreement. The 2014 Notes cannot be transferred except in the event of a change in control or to a permitted transferee. |
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In connection with the 2014 Note Purchase Agreement, the Company must also comply with certain affirmative covenants, such as furnishing financial statements to the 2014 Note Purchasers, and negative covenants, including a limitation on (i) repurchases or redemptions of the Company’s stock, subject to certain exceptions and (ii) the incurrence of debt and the making of investments other than those permitted by the 2014 Note Purchase Agreement. |
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The obligations of the Company under the 2014 Note Purchase Agreement may be accelerated upon the occurrence of an event of default under the 2014 Note Purchase Agreement, which includes customary events of default including, without limitation, payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to judgments, cross-defaults and the occurrence of any material adverse effects, as defined under the 2014 Note Purchase Agreement. |
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Senior Secured Convertible Promissory Note Purchase Agreement |
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On October 18, 2013, the Company entered into the October 2013 Note Purchase Agreement with the Purchasers. The October 2013 Note Purchase Agreement was amended on October 20, 2013 and March 31, 2014, and the October 2013 Note Purchase Agreement, as amended, is described below. |
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The October 2013 Note Purchase Agreement contemplates two tranches of financing. The first tranche consisted of the issuance of $42.5 million of notes (the “2013 Notes”) in exchange for a like amount of cash and approximately $53.2 million of 2013 Notes in exchange for a like amount of existing indebtedness outstanding under the Loan and Security Agreement. The second tranche consists of the sale of up to $7.5 million of shares of the Company’s Class A Common Stock in exchange for a like amount of existing indebtedness equal to $25 million in principal amount, plus accrued interest and applicable fees outstanding under the Loan and Security Agreement prior to March 17, 2013. The shares of the Company’s Class A Common Stock issuable as a part of (i) the conversion of 2013 Notes in the first tranche, (ii) the second tranche and (iii) a part of the Purchaser’s option or the Company’s put option, as described below, are referred to as the “NPA Shares”. |
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In the first tranche, which closed on October 21, 2013, KV III and VNK purchased 2013 Notes in an aggregate amount of $42.5 million, resulting in gross proceeds to the Company of $42.5 million, and Khosla purchased 2013 Notes in an aggregate amount of approximately $53.2 million pursuant to the conversion of outstanding indebtedness owed to Khosla for loans received from Khosla from and after March 17, 2013 under the Loan and Security Agreement. |
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The 2013 Notes bear no interest and are convertible into shares of Class A Common Stock at a conversion price of $2.897 per share (such price, as it may be adjusted from time to time as set forth below, the “Conversion Price”), which represents a 25% premium over the average daily volume weighted average price of the Company’s Class A Common Stock for the 20 trading days ending on October 17, 2013. The Conversion Price may be decreased in the event of certain subsequent equity issuances (each, a “Dilutive Issuance”) by the Company below the Conversion Price of the 2013 Notes between the date of the first tranche closing and the earlier of (i) October 21, 2014 and (ii) the conversion of the 2013 Notes. If the Company consummates a Financing Event (as defined below) after the one year anniversary of the first tranche closing, 2013 the Notes will automatically convert simultaneous with the closing of the Financing Event. Upon the occurrence of any of the foregoing events, the principal amount of the 2013 Notes (which, for clarification, will include any interest previously paid in kind) will automatically be converted into shares of the Company’s Class A Common Stock at the then effective Conversion Price. |
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The $50 million borrowed from Khosla, made available under Amendment No. 1 to the Loan and Security Agreement, plus paid-in-kind interest, accrued interest and applicable fees, totals the $53.2 million indebtedness exchanged for like amount of 2013 Notes. The Company accounted for this exchange as a troubled debt restructuring as there is a significant decrease in the effective interest rate due to the stated rate changing from 16% to zero and the maturity date being extended from February 1, 2016 to February 1, 2020. There was no gain or loss recognized as a result of the exchange as the undiscounted cash flows of the $53.2 million Note exceeded the carrying value of the Loan and Security Agreement indebtedness being exchanged immediately prior to the exchange. Immediately prior to the exchange there was an unamortized discount of approximately $7.5 million against the Loan and Security Agreement indebtedness being exchanged, giving it a carrying value of approximately $45.7 million. |
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The $53.2 million Note plus the $42.5 million Note issued for cash, totaling $95.7 million, is the gross value of the 2013 Notes and the unamortized discount of $7.5 million will remain against the debt. The Company established a new effective interest rate to amortize the discount through February 1, 2020. |
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The second tranche will occur subsequent to the receipt by the Company of aggregate net cash proceeds of at least $400 million from one or more offerings, private placements or other financing transactions comprised of the issuance of 2013 Notes and NPA Shares under the October 2013 Note Purchase Agreement, a pre-approved high yield debt financing and/or the sale of Class A Common Stock (the “Project Financing Amount”). The closing of the second tranche is subject to other standard conditions. In the second tranche, KV III and VNK will purchase NPA Shares in an aggregate amount of up to $7.5 million and Khosla will purchase NPA Shares pursuant to the conversion of the amount of the indebtedness (equal to $25 million in principal amount, plus accrued interest and applicable fees) owed to Khosla under the Loan and Security Agreement for loans received from Khosla prior to March 17, 2013 under such agreement. The NPA Shares will be purchased for a price equal to the Conversion Price. |
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In addition, the Company has a put option that it can exercise in the event it raises the Project Financing Amount (such event, the “Financing Event”). At any point beginning 365 days following the consummation of the Financing Event until the two year anniversary of the consummation of the Financing Event (the “Two Year Date”), the Company may, at its sole election, sell shares of Class A Common Stock to Khosla in an aggregate amount of up to $35 million. Such shares will be purchased for a price equal to the Conversion Price. The put option is subject to adjustment, as set forth below, although in no event will the put option be for more than $35 million in NPA Shares. The closing of the put option is subject to standard conditions. |
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In the event the Company consummates sales of additional 2013 Notes (or substantially similar indebtedness) or its equity securities resulting in aggregate proceeds to the Company of $100 million or more before the put option is exercised, the put option will terminate. If the Company consummates sales of additional 2013 Notes (or substantially similar indebtedness) or its equity securities resulting in aggregate proceeds to the Company of less than $100 million before the put option is exercised, Khosla will purchase a number of shares equal to the difference (the “New Commitment”) between $100 million and the funds actually raised (the “Raised Amount”), which Raised Amount shall include the aggregate value of the 2013 Notes and the NPA Shares (other than the 2013 Notes and NPA Shares purchased by Khosla) and the Gates Shares. The New Commitment will be in lieu of the commitment to purchase $35.0 million of NPA Shares as a part of the put option as described above. |
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In addition, Khosla, or its assignee, has an option it can exercise prior to the earlier of (i) the Two Year Date and (ii) February 1, 2020 to purchase the NPA Shares it would otherwise purchase in the second tranche or as a part of the put option so long as the Purchaser beneficially owns at least 20% of the shares of Class A Common Stock issued or issuable upon conversion of the 2013 Notes purchased by such Purchaser. |
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In connection with the October 2013 Note Purchase Agreement, the Company must also comply with certain affirmative covenants, such as furnishing financial statements to the Purchasers, and negative covenants, including a limitation on (i) repurchases or redemptions of the Company’s stock, subject to certain exceptions, (ii) the incurrence of capital expenditures in excess of $50 million prior to receipt by the Company of the Project Financing Amount and (iii) the incurrence of debt and the making of investments other than those permitted by the October 2013 Note Purchase Agreement. Furthermore, the Purchasers have a right of first offer for the offer or sale by the Company of any new securities, provided that such Purchaser beneficially owns 10% or more of the NPA Shares issued to the Purchaser under the October 2013 Note Purchase Agreement at the time of such offer or sale. Amendment No. 2 to the October 2013 Note Purchase Agreement provided for, among other things, the 2014 Notes to be deemed permitted indebtedness and the liens securing the 2014 Notes to be permitted liens under the October 2013 Note Purchase Agreement. |
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The obligations of the Company under the October 2013 Note Purchase Agreement may be accelerated upon the occurrence of an event of default under the October 2013 Note Purchase Agreement, which includes customary events of default including, without limitation, payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to judgments and cross-defaults. |
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The shares of Class A Common Stock issuable upon conversion of the Notes were not transferrable for 6 months following the closing of the first tranche, subject to exceptions for transfers to permitted transferees specified in the October 2013 Note Purchase Agreement. Any permitted transferees must agree to be bound by the terms and conditions of the October 2013 Note Purchase Agreement, including with respect to the limitations on transfer of the securities such permitted transferee receives. The Notes cannot be transferred except in the event of a change in control or to a permitted transferee. |
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Alberta Lenders/Khosla Term Loan |
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Overview of the Loan and Security Agreement |
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On January 26, 2012, the Company entered into a Loan and Security Agreement with 1538731 Alberta Ltd. as agent and lender, and 1538716 Alberta Ltd. (the “Alberta Lenders”), and Khosla, (collectively, the “Lenders”). Pursuant to the agreement, the Alberta Lenders made a term loan to the Company in the principal amount of $50 million and Khosla made a term loan to the Company in the principal amount $25 million, for a total of $75 million in principal amount (the “Loan Advance”). At closing, the Company paid the Lenders a facility of $750,000. |
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In March 2013, the Company entered into Amendment No. 1 to the agreement, which, among other things, (i) increased the amount available under the facility by $50 million, which the Company borrowed in full and which was subsequently converted (along with accrued interest) into notes issued under the Company’s October 2013 Note Purchase Agreement described above, (ii) replaced the requirement to make installment payments of principal with a single balloon payment at maturity and (iii) allowed the Company to elect payment of paid-in-kind interest throughout the term of the loan. |
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In connection with the amendment described above, the Company agreed to pay the Alberta Lenders $100,000 for costs and expenses and agreed to issue certain warrants as described below. |
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In October 2013, the Company entered into Amendment No. 2 to the Loan and Security Agreement (“Amendment No. 2”) to modify the terms pursuant to which the obligations under the Loan and Security Agreement will convert to high yield debt and equity, as applicable, to require the conversion upon a project financing event of $400 million, including the issuance of equity and high yield debt on certain terms and conditions. |
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In March 2014, the Company entered into Amendment No. 3 to the Loan and Security Agreement (as amended by Amendment No. 1, Amendment No. 2 and Amendment No. 3, the “Loan and Security Agreement”) to clarify that the secured obligations under the Loan and Security Agreement are subordinate to the 2013 Notes and 2014 Notes. |
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As of August 2013, the Company had borrowed all amounts available under the Loan and Security Agreement. |
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The Loan Advance bears interest from the funding date at 16.00% per annum (the “Loan Interest Rate”). The Company agreed to pay interest on the Loan Advance in arrears on the first day of each month, beginning March 1, 2012. The Company may elect payment of paid-in-kind interest, instead of cash interest, during the term of the loan. If the Company elects payment of paid-in-kind interest, the Company will issue Subsequent PIK Warrants (as defined below) that cover interest due over the following 12 months and the interest is added to the principal balance of the loan. |
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The Loan Advance is payable in full at its stated maturity date of February 1, 2016. At the Company’s option, it may prepay the Loan Advance, in whole or in part (including all accrued and unpaid interest) at any time, subject to a prepayment premium if the Company prepays the Loan Advance prior to four years from the date of the loan. The prepayment premium is equal to 4% until the first anniversary of the date of the Loan and Security Agreement, and decreases by 1% on each subsequent anniversary. |
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The Company also agreed to pay the Lenders an end of term charge equal to 9% of the aggregate amount of all advances made plus all interest paid-in-kind (instead of cash interest) upon the earlier to occur of the maturity of the Loan Advance, prepayment in full of the Loan Advance, or when the Loan Advance becomes due and payable upon acceleration. The Company is amortizing the end of charge term to interest expense and increasing the liability for the end of term charge over the life of the loan. The Company had amortized approximately $5.8 million as of March 31, 2014, which is included in the principal balance of the loan. |
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The Company’s obligations under the Loan and Security Agreement may be accelerated upon the occurrence of an event of default under the Loan and Security Agreement, which includes customary events of default including, without limitation, payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to judgments, cross-defaults, and a change of control default. The Loan and Security Agreement also provides for indemnification of 1538731 Alberta Ltd. as agent and the Lenders. |
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The Company granted the Lenders a security interest in all or substantially all of its tangible and intangible property, including intellectual property, now owned or hereafter acquired, subject to certain exclusions. |
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Warrants Issuable under the Loan and Security Agreement |
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In connection with the Company’s initial entrance into the Loan and Security Agreement, the Company issued the Lenders warrants (each an “Initial Warrant”), to purchase an aggregate of 1,161,790 shares of the Company’s Class A common stock, subject to certain anti-dilution adjustments, at an exercise price of $11.62 per share, which was the consolidated closing bid price for its Class A common stock on January 25, 2012. The Initial Warrants were issued as partial consideration for the Lenders’ entry into the Loan and Security Agreement and will expire 7 years from the date of the grant. Each Initial Warrant may be exercised by payment of the exercise price in cash or on a net issuance basis. |
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In partial consideration for Amendment No. 1 to the Loan and Security Agreement described above, the Company issued the Lenders warrants to purchase an aggregate of 619,867 shares of the Company’s Class A common stock for an exercise price per share of $5.71 (each an “ATM Warrant”). In addition, on the first day of each subsequent 12 month period, the Company has agreed to grant to the Lenders additional shares under their respective ATM Warrants equal to (i) 3.75% of the average principal balance of the Loan Advance as of the last calendar day of each of the 12 months for such 12 month period payable to such Lender as of the last calendar day of each 12 month period, divided by (ii) 100% of the volume-weighted average closing market price per share of its Class A Common Stock over the 20 consecutive trading days ending on, but excluding, the day of grant (the “Average Market Price”). As such, on March 18, 2014 the Company issued the Lenders ATM Warrants to purchase an aggregate of 3,032,406 shares of its Class A common stock for an exercise price of $1.37. The ATM Warrants expire on August 3, 2020. As the Company borrowed additional amounts under the Loan and Security Agreement and the principal balance increased, the Company issued additional shares under its ATM Warrants. In connection with the additional $50 million borrowed from Khosla, the Company issued to Khosla an ATM Warrant to purchase 480,123 shares of its Class A Common Stock at exercise prices ranging from $3.10 per share to $5.06 per share. The ATM Warrants issued to Khosla will not be exercisable until the ATM Warrant issuances have been approved by the Company’s stockholders. Khosla Ventures controls a majority of the voting power of the Company’s outstanding common stock and would therefore also control any such approval vote. |
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In connection with each subsequent Loan Advance from Khosla, the Company issued to Khosla warrants to purchase shares of the Company’s Class A common stock (a “Subsequent Drawdown Warrant”). The number of shares of the Company’s Class A common stock underlying the Subsequent Drawdown Warrant (assuming no net issuance) is an amount equal to 18% of the amount of the subsequent Loan Advances from Khosla divided by the Average Market Price. The Subsequent Drawdown Warrants expire on August 3, 2020. In connection with the additional $50 million borrowed from Khosla, the Company issued to Khosla Subsequent Drawdown Warrants to purchase 2,139,997 shares of its Class A Common Stock at exercise prices ranging from $3.10 per share to $5.06 per share. The Subsequent Drawdown Warrants issued to Khosla will not be exercisable until the Subsequent Drawdown Warrant issuances have been approved by the Company’s stockholders. |
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In addition, the Company must issue each Lender one or more additional warrants to purchase shares of the Company’s Class A common stock if the Company elects payment of paid-in-kind interest on the outstanding principal balance of the Loan Advance for any month (the “PIK Warrants”). Any PIK Warrants issued prior to the amendment of the Company’s Loan and Security Agreement are referred to as Initial PIK Warrants. Any PIK Warrants issued subsequent to the amendment of the Company’s Loan and Security Agreement are referred to as the Subsequent PIK Warrants. |
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The Initial PIK Warrants were issued as partial consideration for the Lenders’ entry into the Loan and Security Agreement and will expire on August 3, 2020. The Company elected payment of paid-in-kind interest at the first of each month from March 2012 through February 2013, which required the Company to issue warrants to purchase an aggregate of 334,862 shares of its Class A common stock at exercise prices ranging from $11.62 to $13.15 per share to the Lenders through February 2013. |
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The number of shares of the Company’s Class A common stock underlying the Subsequent PIK Warrants (assuming no net issuance) is an amount equal to 18% of the amount of interest paid-in-kind payable over the following 12 months divided by the Average Market Price. The Subsequent PIK Warrants expire on August 3, 2020. The Company elected to pay-in-kind interest over the 12 months following April 1, 2013. As such, in connection with closing Amendment No. 1, the Company issued the Lenders Subsequent PIK Warrants to purchase an aggregate of 478,626 shares of the Company’s Class A common stock for an exercise price per share of $5.71. In connection with the additional $50 million borrowed from Khosla, the Company issued to Khosla a Subsequent PIK Warrant to purchase 377,238 shares of its Class A Common Stock at exercise prices ranging from $3.10 per share to $5.06 per share. The Subsequent PIK Warrants issued to Khosla will not be exercisable until the Subsequent PIK Warrant issuances have been approved by the Company’s stockholders, which vote is controlled by Khosla Ventures. The paid-in-kind interest increased the Loan Advance balance by $28.4 million from inception of the loan to March 31, 2014. |
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The Company has elected to pay-in-kind interest over the 12 months following April 1, 2014. As such, on March 18, 2014 the Company issued the Lenders Subsequent PIK Warrants to purchase an aggregate of 2,342,471 shares of its Class A common stock for an exercise price per share of $1.37. |
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The number of shares for which each PIK Warrant, Subsequent Drawdown Warrant and ATM Warrant is exercisable and the associated exercise price is subject to certain anti-dilution adjustments. Each PIK Warrant, Subsequent Drawdown Warrant and ATM Warrant may be exercised by payment of the exercise price in cash or on a net issuance basis. The Initial Warrants, the PIK Warrants, the Subsequent Drawdown Warrants and the ATM Warrants obligate the Company to file a registration statement on Form S-3 covering the resale of such warrants and the shares of the Company’s Class A common stock issuable upon exercise of such warrants. Subsequent PIK Warrants, Subsequent Drawdown Warrants and ATM Warrants issued by the Company in connection with Amendment No. 1 required the Company to register the resale of such warrants and the shares underlying such warrants on a registration statement on Form S-3 by April 21, 2014 or else be subject to the liquidated damages described below. In connection with Amendment No. 3 to the Loan and Security Agreement, the Lenders agreed to waive (the “Waiver”) the Company’s compliance with any requirement to register the Warrant Agreements, the Additional Warrant Agreements, the Post-First Amendment Additional Warrant Agreements, the ATM Warrant Agreements and all shares of Class A Common Stock issued or issuable upon exercise thereof on Form S-3, as well as any liquidated damages owed to the Lenders as a result of such failure to register the above-referenced warrants and shares on Form S-3. The Waiver applies from the original date of issuance of the warrants until and through January 21, 2015. |
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If a registration statement is not declared effective on or prior to January 21, 2015 (the “Registration Deadline”), or if the registration statement has been declared effective but has been suspended, the Company will pay to the warrantholder liquidated damages. The liquidated damages payable are an amount equal to the product of (i) the aggregate exercise price of the warrant and the warrant shares then held by the warrantholder, which are not able to be sold pursuant to a registration statement for the reasons previously described (the “Aggregate Share Price”), multiplied by (ii) one and one-half hundredths (.015), for each 30 day period, (A) after the Registration Deadline and prior to the date the registration statement is declared effective by the SEC, and (B) during which sales of any warrants or warrant shares covered by a registration statement cannot be made pursuant to any such registration statement after the registration statement has been declared effective, subject to limited exceptions. The liquidated damages are payable in cash within five trading days after the end of each 30 day period that gives rise to the payment obligation, but are limited to 25% of the Aggregate Share Price paid by (or to be paid by) a warrantholder for its warrant shares. |
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The Company and the Lenders have agreed that without the Company first obtaining the approval from its stockholders, which vote is controlled by Khosla Ventures, the Company will not have any obligation to issue, and will not issue, any warrants under the Loan and Security Agreement (including without limitation the ATM Warrants, the Subsequent Drawdown Warrants and the Subsequent PIK Warrants) to the extent that their issuance, when aggregated, would obligate the Company to issue more that 19.99% of the Company’s outstanding Class A common stock (or securities convertible into such Class A common stock), or the outstanding voting power, as calculated immediately prior to the execution of the amendment (subject to appropriate adjustments for any stock splits, stock dividends, stock combinations or similar transactions), in each case at a price less than the greater of the book or market value of the Company’s Class A common stock. |
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Mississippi Development Authority Loan |
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In March 2011, KiOR Columbus entered into a loan agreement with the MDA, pursuant to which the MDA has agreed to make disbursements to KiOR Columbus from time to time, in a principal amount not to exceed $75 million, to reimburse costs incurred by KiOR Columbus to purchase land, construct buildings and to purchase and install equipment for use in the manufacturing of the Company’s cellulosic transportation fuels from Mississippi-grown biomass. Principal payments on the loan are due semiannually on June 30 and December 31 of each year and commenced on December 31, 2012 and will be paid on such dates over 20 years. In addition, the Company is required to pay the entire outstanding principal amount of the loan, together with all other applicable costs, charges and expenses no later than the date 20 years from the date of its first payment on the loan. The loan is non-interest bearing. |
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The loan agreement contains no financial covenants. Events of default include a failure by KiOR Columbus or KiOR to make specified investments within Mississippi by December 31, 2015, including an aggregate $500.0 million investment in property, plant and equipment located in Mississippi and expenditures for wages and direct local purchases in Mississippi totaling $85.0 million. Based on its current estimates, the Company believes that it will be unable to meet the specified investment requirement in property, plant and equipment under its MDA Loan and if the Columbus facility is not operating during 2014, it expects it will be unable to meet the specified expenditures for wages and direct local purchases. Failure to meet these requirements would constitute a default under its MDA Loan. Any defaults under its MDA Loan could, in turn, result in cross defaults under its other loan facilities. |
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The Company is a parent guarantor for the payment of the outstanding balance under the loan. In addition, unless it obtains near term additional financing, the Company does not expect to have sufficient funds available to make its payment to the MDA due on June 30, 2014. If an event of default occurs and is continuing, the MDA may accelerate amounts due under the loan agreement. The loan is secured by certain equipment, land and buildings of KiOR Columbus. |
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In 2011, the Company received all $75.0 million under the MDA Loan to reimburse the Company for expenses incurred on the construction of its initial-scale commercial production facility located in Columbus, Mississippi. As of March 31, 2014, borrowings of approximately $69.4 million under the MDA Loan were outstanding. |
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The non-interest bearing component of the MDA Loan was estimated to be approximately $32.2 million, which is recorded as a discount on the MDA Loan and a reduction of the capitalized cost of the related assets for which the Company was reimbursed in the same amount. The loan discount is recognized as interest expense, subject to interest capitalization during the construction phase, using the effective interest method. As of March 31, 2014, $6.4 million of the loan discount had been recognized as interest expense and subsequently capitalized to the extent allowed. |
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Interest expense |
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For the three months ended March 31, 2014 and 2013, interest expense incurred was $7.1 million and $6.0 million, respectively, of which zero and approximately $3.8 million, respectively, was capitalized. |