Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.7.0.1
Debt
3 Months Ended
Mar. 31, 2017
Debt Disclosure [Abstract]  
Debt

Note 6 – Debt

 

Short-Term Note

 

On November 30, 2016, the Company entered into a loan agreement (the “Loan Agreement”) with two of the Company’s largest shareholders, one of which is currently the holder of approximately 20% of the Company’s outstanding shares of common stock, par value $0.001 per share (the “Common Stock”). A portion of the proceeds from the Loan Agreement was used to pay the remaining outstanding amount payable (approximately $1 million) by the Company under an equipment purchase agreement dated October 10, 2014, as amended, with Gordon Brothers Commercial & Industrial, LLC for the purchase of certain turbine powered pressure pumping equipment (“TPU”).

 

At December 31, 2016, the Company had a balance of $2,000,000 and accrued interest of $24,548. The indebtedness created under the Loan Agreement was repaid on March 6, 2017 with a portion of the proceeds from the Fir Tree Transaction (as described in Note 1).

 

On January 1, 2017, the Company financed its operations insurance premiums with US Premium Finance for a total of $211,681 at an interest rate of 5.87%. As of March 31, 2017, the Company had a balance of $170,167 and accrued interest of $832.

 

Long-Term Notes Payable

 

Convertible Note Facility

 

On May 28, 2014 (the “Closing Date”), the Company entered into a Convertible Note Facility Agreement (the “ACM Note Agreement”) with ACM Emerging Markets Master Fund I, L.P. and ACM Multi-Strategy Delaware Holding LLC (collectively, the “ACM Entities”). The proceeds from the ACM Note Agreement were used primarily for capital expenditures, certain working capital needs and approved operating budget expenses.

 

The ACM Note Agreement allowed the Company to issue ACM Entities a multiple draw secured promissory note with maximum aggregate principal amount of $22,000,000, convertible into Common Stock at a price of $6.00 per share at the option of ACM Entities (the “Existing ACM Note”). The outstanding debt under the facility was convertible immediately and accrued interest at 14% per annum with interest payments due annually in arrears.

 

As of December 31, 2016, the Company had drawn down the full $22,000,000 available under the ACM Note Agreement, which was primarily used for capital expenditures, certain working capital needs and approved operating budget expenses.

 

On March 6, 2017, the Company closed the Fir Tree Transaction, which was part of a comprehensive recapitalization designed to create a path to a potential conversion to equity of substantially all the Company’s debt, subject to shareholder approval and satisfaction of certain other conditions. In connection with the Fir Tree Transaction, the Company entered into the Amended and Restated Convertible Note Facility Agreement (“A&R Note Agreement”) with the Fir Tree Affiliate, which became effective on March 6, 2017 and replaced the ACM Note Agreement. Pursuant to the terms of the A&R Note Agreement, the Company issued to the Fir Tree Affiliate a secured promissory note (the “Amended and Restated Convertible Note”) in a principal amount of $22 million, which replaced the Existing ACM Note, and a secured promissory note (the “New Convertible Note,” and together with the Amended and Restated Convertible Note, the “Notes”) in a principal amount of approximately $19.4 million, representing an additional $17 million aggregate principal amount of convertible notes issued by the Company to the Fir Tree Affiliate on March 6, 2017 and approximately $2.4 million principal amount of convertible notes in payment of accrued and unpaid interest on the Existing ACM Note acquired by the Fir Tree Affiliate from the ACM Entities. The unpaid principal amount of the Notes bears an interest rate of 20% per annum and matures on May 28, 2018.

 

After giving effect to the Fir Tree Transactions, as of March 31, 2017 the Company had approximately $41.4 million of outstanding convertible notes. The Fir Tree Affiliate has agreed to convert all the outstanding convertible notes into Common Stock at a conversion price of $1.40 per share, subject to receipt of shareholder approval at the Annual Meeting and satisfaction of certain other conditions. Assuming all the outstanding convertible notes are converted into Common Stock, on a pro-forma basis, the Company would issue approximately 29.5 million shares to the Fir Tree Affiliate and would then have approximately 44.6 million shares outstanding (assuming no other issuance of shares) and no outstanding debt.

 

Deferred Debt Costs

 

The Company capitalizes certain costs in connection with obtaining its financings, such as lender’s fees and related attorney fees. These costs are amortized to interest expense using the straight-line method.

 

Deferred debt costs were approximately $551,661, net of accumulated amortization of $39,339 as of March 31, 2017

 

Long-Term Debt Summary

 

The following is a summary of scheduled long-term notes payable maturities by year:

 

2017        
2018       41,354,301  
Total notes payable     $ 41,354,301