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13. Long-Term Debt

9 Months Ended

Sep. 30, 2014

Long-term debt consisted of the following:

	September 30,		December 31,
	2014		2013
Refinery Note	$	8,755,089	$	9,057,937
Notre Dame Debt		1,300,000		1,300,000
Capital Leases		483,682		-
Construction and Funding Agreement		-		5,747,330
		10,538,771		16,105,267
Less: Current portion of long-term debt		590,098		2,215,918
	$	9,948,673	$	13,889,349

Refinery Note. The Refinery Note accrues interest at a rate of prime plus 2.25% (effective rate of 5.50% at September 30, 2014) and has a maturity date of October 1, 2028 (the “Maturity Date”). LE’s obligations under the Refinery Note are secured by a Deed of Trust (the “Deed of Trust”) of even date with the Loan Agreement. The Refinery Note is further secured by a Security Agreement (the “Security Agreement” and, together with the Loan Agreement, the Refinery Note and Deed of Trust, the “Refinery Loan Documents”) also of even date with the Refinery Note, which Security Agreement covers various items of collateral including a first lien on the Nixon Facility and general assets of LE. The principal balance outstanding on the Refinery Note was $8,755,089 and $9,057,937 at September 30, 2014 and December 31, 2013, respectively. Interest was accrued on the Refinery Note in the amount of $40,127 and $40,132 at September 30, 2014 and December 31, 2013, respectively. See “Note (1) Organization – Operating Risks” of this report for additional disclosures related to the Refinery Note.

The Loan Agreement has Financial Maintenance Covenants. As of December 31, 2013, we were in violation of the current ratio covenant in the Loan Agreement. However, the Waiver Agreement waives any default or event of default that may have occurred in relation to LE’s non-compliance with the Financial Maintenance Covenants and is effective through December 31, 2014. As of September 30, 2014 and the date of filing of this report, we were in compliance with the Financial Maintenance Covenants. Accordingly, the Refinery Note has been classified as long-term on our consolidated balance sheets.

In October 2011, the Refinery Loan Documents were acquired by AFNB. On September 1, 2013, AFNB and LE amended the Refinery Note (the “Note Modification Agreement”). Pursuant to the Note Modification Agreement, the monthly principal and interest payment due under the Refinery Note is $75,310. Other than modification of the payment terms under the Refinery Note, the terms under the Loan Agreement and the Refinery Note remain the same through the Maturity Date and the Refinery Loan Documents remain in full force and effect.

Notre Dame Debt. LE entered into a loan with Notre Dame Investors, Inc. as evidenced by that certain promissory note in the original principal amount of $8,000,000, which is currently held by John Kissick (the “Notre Dame Debt”). The Notre Dame Debt accrues interest at a rate of 16% and is secured by a Deed of Trust, Security Agreement and Financing Statements (the “Subordinated Deed of Trust”), which encumbers the Nixon Facility and general assets of LE. The principal balance outstanding on the Notre Dame Debt was $1,300,000 at September 30, 2014 and December 31, 2013. Interest was accrued on the Notre Dame Debt in the amount of $1,222,360 and $1,066,784 at September 30, 2014 and December 31, 2013, respectively. There are no financial maintenance covenants associated with the Notre Dame Debt. The due date of the Notre Dame Debt was extended to July 1, 2016. Pursuant to a Second Amendment to Promissory Note made effective October 1, 2014, the Notre Dame Debt was amended to extend the maturity date to July 1, 2016/

Pursuant to Intercreditor and Subordination Agreements dated September 29, 2008 and August 12, 2011, the holder of the Notre Dame Debt and Subordinated Deed of Trust agreed to subordinate its interest and liens on the Nixon Facility and general assets of LE in favor of the holder of the Refinery Note, the Deed of Trust and Security Agreement and Milam Services, Inc. (“Milam”), an affiliate of Genesis, under the Construction and Funding Agreement, respectively.

Pursuant to a First Amendment to Promissory Note made effective July 1, 2013, the Notre Dame Debt was amended as follows: (i) the annual interest rate on the unpaid balance was set to 16% and (ii) the final maturity became July 1, 2015.

Capital Leases. Long-term capital lease obligations totaled $483,682 and $0 at September 30, 2014 and December 31, 2013. The following is a summary of equipment held under long-term capital leases:

	September 30,		December 31,
	2014		2013
Cost	$	537,130	$	-
Less: Accumulated depreciation		-		-
	$	537,130	$	-

On August 7, 2014, we entered into a 36 month “build-to-suit” capital lease for the purchase of new boiler equipment for the Nixon Facility. The cost of the equipment has been added to construction in progress until it has been completed, delivered, and placed into service. Depreciation will begin once the equipment has been placed into service. The equipment is estimated to be completed and delivered in December 2014. The long-term capital lease obligation requires a monthly payment of $14,332 per month. However, until the equipment is delivered, we are required to make payments of $7,159 per month.

Construction and Funding Agreement. In August 2011, Milam committed funding for the completion of the Nixon Facility’s refurbishment and start-up operations. Payments under the Construction and Funding Agreement began in the first quarter of 2012. All amounts advanced under the Construction and Funding Agreement bore interest at a rate of 6% annually. There were no financial maintenance covenants associated with this obligation.

The principal balance outstanding on the Construction and Funding Agreement was $0 and $5,747,330 at September 30, 2014 and December 31, 2013, respectively. Interest was accrued on the Construction and Funding Agreement in the amount of $0 and $700,597 at September 30, 2014 and December 31, 2013, respectively. As a result of LE’s repayment of all amounts due and owing to Milam pursuant to the Construction and Funding Agreement, LE shall now receive up to 80% of the Gross Profits as LE’s Profit Share under the Joint Marketing Agreement. In addition, Milam shall release all liens on the Nixon Facility. See “Part I, Item 1. Financial Statements - Note (22) Commitments and Contingencies” of this report for additional disclosures related to the Construction and Funding Agreement and our relationship with Genesis.