Debt

9 Months Ended

Sep. 30, 2011

Debt

Debt

(6)   Debt

2011 Notes

On May 17, 2011, in connection with the settlement of the 2007 Notes Litigation, we entered into a convertible note agreement with the holders of the 2009 Notes, with the following terms: (i) principal amount of $1.55 million; (ii) maturity date of May 17, 2012; (iii) stated interest rate of 7% per annum, payable upon maturity; and (iv) convertible (in whole or in part), at any time after May 17, 2011 until payment of the note in full, at the holder’s option, into shares of our common stock at a conversion price equal to $1.89 per share (the “2011 Notes”).  We also issued warrants to purchase up to 200,000 shares of our common stock at an exercise price per share of $1.89. We fair valued the warrants using the Black-Scholes option pricing model at $199,000 used as a basis in determining the beneficial conversion feature of $353,000 discounted against the note. The beneficial conversion feature will be amortized over the life of the note.  See further discussion in Note 10—Commitments and Contingencies.

2009 Notes

On March 20, 2009, we executed a Senior Secured Convertible Note Agreement which provides for the issuance of up to $15 million in aggregate principal amount of 10% Senior Secured Promissory Notes (“2009 Notes”), in three $5 million tranches.  On April 1, 2010, we closed the sale of Buckeye and repaid the outstanding notes, including accrued interest and fees, totaling $19.2 million. We recorded a loss on the early extinguishment of these notes totaling $3.7 million primarily related to the acceleration of debt issuances costs, the acceleration of exit fees and the write-off of our derivatives described below.  In addition, pursuant to discontinued operations guidance, the interest expense for the 2009 Notes has been reflected in discontinued mining operations for the period ended September 30, 2010.

We were required to adjust the conversion price upon the occurrence of a future issuance of stock or warrants at a price less than the 2009 Notes conversion price. We used a fair value modeling technique to value this derivative and were required to fair value the derivative at each reporting period and, as a result, we recorded $680,000 of other income for both of the three and nine months ended September 30, 2010, by decreasing the fair value of the derivative liability.

2007 Notes

On July 30, 2007, we completed the sale of our Convertible Secured Notes due 2012 (“2007 Notes”).  Over the last several years and through December 31, 2010, we completed a series of transactions which reduced our debt by $78.2 million.  On February 1, 2011, we executed an agreement to settle an aggregate of $17.3 million of our 2007 Notes and the associated litigation.  See further discussion in Note 10—Commitments and Contingencies.

During the nine month period ended September 30, 2011, we entered into an individually negotiated agreement with certain existing noteholders to exchange $1.4 million in aggregate principal amount for an aggregate of 237,500 shares of our common stock. After these transactions, the remaining principal balance was $2.8 million outstanding as of September 30, 2011.  Prior to each exchange of 2007 Notes for common stock, each of the converting noteholders agreed to release each guarantee issued pursuant to the indenture with respect to such 2007 Notes being exchanged such that, at the time of each exchange, such 2007 Notes being exchanged were not guaranteed securities and were solely securities of Evergreen Energy. We recognized a $435,000 gain, after reduction for transaction costs and the non-cash write off of debt issue costs and related embedded derivatives associated with this exchange transaction for the nine months ended September 30, 2011.