Idle Texas plant uses convertible notes to spark investment

By Luke Geiver | March 18, 2011

EQM Technologies & Energy Inc. went looking for working capital, and according to Robert Galvin, CFO of EQM, the company has found it. After performing a reverse merger to acquire Beacon Energy Holdings in January, the newly named EQM Technology & Energy Inc. needed funding to restart a 12 MMgy biodiesel facility in Cleburne, Texas formerly owned and operated by Beacon Energy Holdings. The board of directors for EQM authorized the sale of $3 million for convertible notes, and Galvin said he has secured $2.5 million. “When we acquired this business we needed to raise some working capital to effectively start the plant,” Galvin told Biodiesel Magazine.

The convertible notes mean that those notes “are convertible into shares of the company’s common stock. If the stock trades above the conversion price,” Galvin said, “I’m expecting that the holders of these notes will want to convert their notes to stock.” If however, the stock doesn’t trade above the conversion price he added, “I’m sure they’ll want to hold onto their notes. If that were to happen, these notes mature in three years, at which time they will be paid their principle with interest.”

Of the group of investors, Galvin said roughly 50 percent came from officers or directors already in the company. The other half have worked with either EQM or Beacon Energy Holdings in the past. “This was not a wide ranging solicitation by any means,” he said, noting “that may be the case down the road if we need more capital.”

The working capital has already been put to good use, and although there are already talks of expansion, the current plans are just to get the plant up and running. “At this point our goal is to begin production and we are well on our way of doing that. The plant has been through all of the inspection and testing, it has insurance and employees,” and Galvin noted, “we’ve been purchasing chemical and feedstock to produce product.”

One of the main reasons the plant will return to production is linked to the convertible notes issued by the board of directors. An investor could simply buy notes from a bank that would guarantee a payback with interest in three years, but with a convertible note an investor has more options. “If this company does well and if the stock price goes up,” Galvin said, then that investor can convert it at a price that is pretty attractive. “At worst case we are going to pay your principle back at 10 percent interest, and at best case the company is going to do well, the stock is going to go up and then there will be more upside to this. That is what the convertible feature does,” he continued. 

 

 
 
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