The $38M Dollar Deal

SkunK outline of the $38M dollar deal.

Imagine we are all in a squad together, dug in at Guadalcanal. We have been eating the same "cold canned meat and biscuits" for weeks. We finally get permission to start a small fire and look forward to eating some "hot canned meat and biscuits". Then somebody grabs an empty ammo can and throws in the last can of spam they were saving. The next guy empties in a can of condensed tomato soup. Another guy puts in a can of peas and carrots he stole from the navy ship on the cruise over. Lastly, out come two potatoes from a cargo pocket - freed from the Regimental Officers mess during the last ammo run to the rear. The First Sergeant's clerk shows up with a pint of Ol'Granddad - he gets a double helping. Everyone puts in some cold assets - we add some Tabasco sauce and a fire - and everyone takes out a hot, nutritious meal, worth more than the sum of the parts.

*********
What took a knowing nod in the field - takes a Membership Interest Purchase and Equity Capital Contribution Agreement (the "ECCA Agreement") in the boardroom. GS NextDiesel, BIG, CBP, GS Adrian, and GreenShift are members and all throw in something.

That empty ammo can is GS NextDiesel. This is what is going in that pot.

Greenshift: GreenShift will contribute to GS NextDiesel all of its "existing" (Two - Utica and Medina Only#) corn oil extraction facilities and its interest in Biofuel Industries Group LLC, the Michigan company that developed the plant and which was purchased by GreenShift in May. When the remaining listed 10 COES come on line GS NextDiesel pays a 350K release fee to YAGI and they are transferred to GS NEXTDiesel. Greenshift agrees to reduce debt due to YA Global by about $13.5M by January 2010. GreenShift issued to YA Global a $1,950,000 10% convertible debenture due December 31, 2011 (the "Exchange Debenture"). GreenShift will issue directly to the members of CleanBioenergy warrants to purchase 17,413,871 shares of GreenShift common stock for a term of 10 years at a price of 0.1 cents per share.

YAGI: Increases GreenShift's January 2008 revolving credit facility from $10,000,000 to $13,750,000. They also cancel a $2.0 million override fee that owned by Greenshift. They gave back to Greenshift YA Global's 10% equity interest and warrants to purchase additional equity in GreenShift's GS AgriFuels subsidiary.

CleanBioenergy: Invest up to $38 million in preferred stock in GS NextDiesel to deploy 12 corn oil extraction plants and to double the capacity of GreenShift's 10 million gallon per year NextDiesel biodiesel refinery to 20 million gallons per year. Also $13.5 million will be used to retire part of GreenShift’s legacy research and development debt
*********
This is how we are divide up that hot meal:

A pint of Old Granddad in a foxhole at the Canal - How could a commodity be more precious than that? How about cash in today's environment? CleanBioenergy puts up the cash and takes out a double helping . . .
70 percent of the membership units in GS NextDiesel -- the new owner of the Adrian plant -- will be issued to CleanBioenergy, and 30 percent to GS Adrian, a new GreenShift subsidiary.

The Fire? So what is the fire in your little story SkunK?
Greenshift provides the fire - the value adding catalyst - that is what makes the deal more that the sum of its parts. The fire is the technology, the management, the skilled technicians that CAN turn these cold assets into a "hot" profitable enterprise.

So what do the rest of the ingredients mean in your story?
When you use a metaphor you gotta know when to drop it and run. I'll stop now and let you decide who is the peas and carrots - and who is the Tabasco sauce! lol

Bottom line for Greenshift and their Shareholders:
Greenshift will end up with a 30% ownership in the Utica and the Western New York COES plants and the Adrian NextDiesel plant. Before they had 100% of 10mmgy. Due to a lack of COES financing we actually were only using a small fraction of that 10mmgy - more like at a 2.1mmgy annual rate for the 3Q. Now GERS will own 30% of 20mmgy (or 6mmgy). So one way the SkunK will look at this is we are increasing internal production by three times - from 2 to 6mmgy. They diluted the common shares by about 20% by issuing about 17.5M - 10 year warrants to CleanBioEnergy at a tenth of a cent apiece. The warrants allow CleanBioEnergy to purchase common shares at a huge discount - although unlike a convertible debenture, the number of shares is locked in and this gives them a strong stake in a rising stock price.

The infusion of up to 38M is critical. The SkunK has always had a short worry list. (I want your list to be as long as you want!) It included financing and production numbers. It looks like I can take financing off my list. This deal will take the Greenshift effort to 12 COES (13 when you count what SkunK believes to be the "purchase option" Albiob, MI plant) and 20mmgy biodiesel capacity at Nexdiesel. With good production this financing should take us to profitability.

Important tidbits:

CleanBioEnergy has an observation right at Greenshift board meetings.
Kevin Kreisler and Ed Carroll tie up 50% of their stock for two years.

#"Existing COES" shall mean the COES Installations located at Utica Energy, LLC, 4995 State Road 91, Oshkosh, WI 54904 and Western New York Energy, LLC, 4141 Bates Road, Medina, NY 14103. http://www.sec.gov/Archives/edgar/data/1269127/000126912708000182/gers8kex10-1.txt K.

This new Build Out Draw Schedule is reflected in the new COES timeline the SkunK has on the right side of the blog. (a) four (4) COES Installations on or before January 31, 2009, (b) seven (7) COES Installations on or before June 30, 2009, (c) eleven (11) COES Installations on or before September 30, 2009, and (d) twelve (12) COES Installations on or before November 30, 2009. Remember the skunK believes that the Albiob, MI was financed by the Ethanol Plant and is part of the "Purchase Option" and not part of this deal.

"Suspension Date" shall mean the earlier of (i) September 30, 2009, or (b) the date upon which the Borrower has transferred its tenth COES Installation (including the Existing COES) to GS NextDiesel in accordance with the provisions of the GS NextDiesel LLC Agreement and the ECCA, and subject to the provisions of the Consent Agreement.

"YAGI Release Fee" shall mean an amount equal to $350,000.00 per COES Installation (other than the Existing COES) that is transferred to GS NextDiesel, that is required to be paid by GS NextDiesel, or on GS NextDiesel's behalf, to the Lender at the same time as the Level I Payment as part of the consideration for the release of the Lender's security interest in such COES Installation, all as more fully set forth in the Consent Agreement.

CleanBioenergy shall have been granted board observation rights as well as certain financing rights by GreenShift relative to the development of any corn oil extraction, biodiesel or any other GreenShift project commencing from the Initial Equity Contribution Date.

Kevin Kreisler, the Company's Chairman and Chief Executive Officer, and Ed Carroll, the Company's President and Chief Financial Officer, shall have entered into lock-up agreements restricting the sale of 50% of each of their respective equity holdings in GreenShift for two years.

This is a huge and complex deal and the SkunK is by no means a huge and complex fella. The only thing I am sure of here is I missed something important. Or pulled up something from a faulty neuron retrieval system. I am still reading and learning from the filings and your posts and will update and correct this blog throughout the week. I figured it better to go with what I got than wait until I completely understood it (and who knows when and if that would ever happen?!?).

My gut tells me this is not the end of our Investor Relations effort. I think the next 60-90 days will see an outreach program to both new investors and the new Administration. I hope that is what my gut is telling me - either that or I gotta stop eating my stew out of empty ammo cans . .

SkunK